Moscow 1998




Carl joined us as we sat in the staff canteen of the Aerostar Hotel, one of the perks offered by the Canadian JV running the enterprise in return for our leasing office accommodation from them in their business centre. The normally affable Carl, a communication and controls engineer from Lousiana looked distinctly off colour. “Your favourite today Carl – airforce chicken – all wings and undercarriage” the reference was to Carl’s training, he had learned his trade in the US airforce. But he didn’t smile and for the first time I heard him swear, “those mothers in Head Office – they can go….” The last of the phrase was drowned out by someone dropping a lunch tray. When he had calmed down he explained his anger. Two weeks earlier his employer had advanced him twenty five thousand dollars for two months advance rent and the deposit on his new Moscow apartment. Carl worked for a major US oil company so things had to be done by the book. The landlord would have to be paid in roubles and provide evidence of paying tax on the income, hence the exorbitant price, but the agreed rent was denominated in good old USD. Carl being a cautious man did not wish to have that much cash around so had deposited the money in his newly opened rouble bank account. The problem was it was September 2nd and no banks were trading having closed on August 27th due to the masses of citizens trying to remove their savings. At the same time Russia had announced it would default on its International loan repayments.

Selection_529The serious trouble had begun on August 17th when overnight the Kiryenko led Government had devalued the ‘floating peg’ or range of exchange rate for the rouble against the USD by around 30%, but worrying signs had been there throughout the year. In March an increasingly ailing and unpredictable Yeltsin had fired Prime Minister Victor Chernomyrdin and his cabinet in response to a worsening domestic economy dragged down by low oil and other commodity prices, and a generally sluggish world economy which was recovering from the Asian crisis of the year before. Despite the latest USD 22 billion injection of stabilization funds by the IMF and World Bank in July, the lack of confidence in the rouble both at home and abroad and an inflation rate approaching 80% weighed heavily on the Government’s policy of defending the rouble and capital flight was rife. To make matters worse, reports were emerging that some of the funds, in the region of $5-10 billion had been misappropriated. Corruption was the one thing flourishing in Russia.

The fear and the forecast was that when the banks eventually reopen the rouble would trade south of twenty to the dollar, down from six. Carl’s country manager had informed him that a ‘prudent man’ – the moniker would stick with him from then on – would not have trusted a Russian bank in the first place and he was considering making Carl responsible for the shortfall. The irony was that the lease would have been concluded and the monies already paid had it not been for the slow response of the Oil Company’s own lawyers who insisted on approving such things.

Once the banks reopened Kiryenko was removed. Yeltsin tried to reappoint Chernomyrdin but the rival factions in the Duma, primarily the Zuyganov led communists, refused to endorse him and eventually a compromise candidate Yevgenny Primakov was appointed on September 11th. Primakov, an elder statesman and former Head of Foreign Intelligence commanded respect and sought to do his best to protect the wages and savings of state workers and the elderly, but it was an increasingly difficult time for the average citizen. Meanwhile the power and wealth of the Oligarchs continued to grow, they were reaping the benefits of having ensured Yeltsin had been re-elected. At least one though was beginning to experience unease as evidenced when an FSB Lieutenant Colonel appeared on television with four colleagues alleging that among other criminal actions he had been ordered by his immediate boss to kill Boris Berezovsky. The agent, Alexander Litvinenko who four years earlier had investigated a car bomb assassination attempt on Berezovsky, would subsequently be arrested and eventually he would flee Russia and obtain asylum in the UK. He reportedly claimed that he had taken the allegations to the newly appointed Chief of the FSB but the information had been dismissed. That new Chief, a former KGB official, had been selected by Yeltsin from The Presidential Property Management Department in the Kremlin earlier in July. His name, Vladimir Putin.