Under the Alpine peaks the richest oligarchs made the ‘Davos Pact’. If the West was not going to save Yeltsin, they would. This was the moment the Kremlin began to build a power system based on patronage. In exchange for bankrolling a media blitz, importing every PR and campaigning technique they could afford and pushing any positive coverage of Zyuganov off their TV stations, they were allowed to ‘privatize’ the ‘crown jewels’ of the Russian economy at knocked-down prices for their loyalty, in a corrupt scheme known as ‘loans-for-shares’. This way, nearly 60 per cent of the state’s industrial assets were handed to the oligarchs despite the resistance of the left-dominated parliament.29 These included the gigantic Siberian oil, mining and mineral mega-complexes – the heart of the Soviet economy.
By this point all respect for democratic procedure was secondary to staying in power for Yeltsin. He was so frightened of losing the election that he came within inches of a decree suspending it for two years, banning the Communist Party and imposing emergency rule. The decrees drawn up, he was talked out of this move at the last minute, as the first part of his conspiracy went into action, a ‘bomb alert’ in parliament that sent the frightened deputies running into the street.
The night of the first round of the presidential election, after weeks of hysterical propaganda warning of civil war and the Bolshevik menace, dubious returns came in from the provinces. There were many results so statistically improbable, they seemed to point only to fraud. Yeltsin suffered another heart attack before the second round. To the end, Berezovsky denied there was outright vote rigging, but recalled: ‘If you ask me whether the Yeltsin government used administrative resources to win, the answer is yes.’ By this he meant the government used the bureaucracy to campaign for the government candidate.
No one really knows who won the 1996 election, as fraud was so widespread and also used by the opposition. What we know for sure is that it was an unfair vote that paved the way for a new era of ‘no-alternative’ elections. Not sticking to the rules has consequences. ‘There is hardly any doubt who won,’ the future president Dmitry Medvedev is reputed to have said, ‘it was not Boris Nikolayevich Yeltsin’, fending off an accusation of rigging the 2011 parliamentary election.30
Russia already had a monarchical presidency, where what really mattered was court politics around Yeltsin, who could not be dislodged by elections, had neutered parliament, and had surrounded himself with former KGB officers, military men and neoliberal economists. Institutions were in disarray, or had ceased to matter.
Yeltsin’s second term began to collapse barely after it had got going. It discredited Russian liberalism for a generation. ‘Liberals’ as a group have never really been in power in Russia. They were powerful in Yeltsin’s Kremlin, but jostled with free-market KGB types and pro-business military men. Their only real taste of power was the 1998 government of the ‘young reformers’ dominated by Sergei Kiriyenko, Anatoly Chubais and Boris Nemtsov, then favoured as Yeltsin’s successor, which was out and out for radical reforms, without a party backing, representing the kind of neoliberal agenda that only 4 per cent of the electorate had backed in the parliamentary vote.31
Under them, Russia’s economic situation and accounts were deteriorating so badly that by 17 August 1998 there was no alternative left but to default. That night they invited the oligarchs one by one, to alert them. The millions about to lose their deposits were given no warning and no scheme was thought up to insure them. They woke up to the news that the International Monetary Fund (IMF) director Michel Camdessus had cut the country off from further credit and announced: ‘I alerted President Yeltsin that Russia would be treated no differently from Burkina Faso.’32
That night was the second founding of the state. This was when Yeltsin lost control of events. It was the moment when the elite got scared and moved further towards authoritarianism. According to Grigory Satarov, Yeltsin’s former aide, it was then the president ditched the idea of Nemtsov as the successor and decided Russia needed a robust, military man. Intellectuals began to debate the need for a ‘Russian Pinochet’ to defend the market, with the famous talking head Mikhail Leontyev even travelling to Chile to interview the ageing general for national TV – as a model for Russia. The act of defaulting washed out the remaining dregs of hope for democratic capitalism. Scores of banks folded, millions lost their savings, inflation hit 84 per cent and food prices soared.33 Kaliningrad in the west halted financial transfers to Moscow; Vladivostok in the east suspended food deliveries outside the city.
For ordinary Russians, the ‘transition’ seemed to have led nowhere – nothing undermines faith in democracy more than losing your life’s savings. Miners blocked the railroads; inside the government the fear was palpable. The country’s most famous anti-Soviet dissident and its moral authority, Alexander Solzhenitsyn, refused an award from Yeltsin’s government, which he said had ‘taken Russia to such dire straits’.34 In a moment of honesty, Yeltsin’s own prime minister, Viktor Chernomyrdin, blurted out what many truly felt inside the Kremlin: ‘There is still time to save face, but then it’s going to be necessary to save the rest of the body.’35
The feeling that Russia was approaching calamity was heavy and omnipresent. The mayor of Moscow, Yuri Luzhkov, and the former prime minister, Yevgeny Primakov, after he was dismissed by a Yeltsin nervous at his growing popularity, raised an alliance of governors and swung the national NTV channel behind him. There was real fear inside the inner circle known as the ‘family’ that they would put Yeltsin on trial if they seized power.
This circle needed a protector who could win the next election. This was the Kremlin that Vladimir Putin, then a young, impressive former KGB bureaucrat from St Petersburg, first started work in. His friends helped him get there. Yeltsin’s powerful minister for privatization, Anatoly Chubais, had worked for Sobchak in St Petersburg and brought his fellow Sobchakite, the economist Alexey Kudrin, with him. When Putin stuck by Sobchak and refused to serve under his successor, the ‘St Petersburg set’ helped him find work in the Kremlin too. He rose quickly, but the jobs he was assigned for – head of the notoriously corrupt property department, the presidential monitoring service, deputy head of the presidential administration charged with the regions, and then director of domestic intelligence (FSB) – taught him one thing: the Russian ‘federation’ was practically a fiction.
In the eighteen months after the default, the situation was bleak and the ‘family’ knew it. Sensing the changing political wind, even the loyal Boris Nemtsov was pushing Yeltsin to ‘throw the oligarchs out of the Kremlin’.36 ‘The Russian economy was near collapse,’ remembered Berezovsky, barking this out in his Mayfair boardroom to stress the point. Yeltsin’s daughter, her husband, his chief of staff and their favourite oligarch – Berezovsky – began scrambling to find a successor. They had to find one who would neither imprison Yeltsin, nor confiscate their assets but also be strong enough to stop the collapse of Russia. This was ‘Operation Successor’.