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Crisis as Circus

By Sergei Roy

The nicest thing about the current global crisis - oops! That's a nasty word, I mean a mere "economic downturn," of course - is that you can always get a few laughs out of the cockeyed proceedings. To someone on the sidelines it's as good as a circus, with countless clowns mountebanking in the public arena.

Consider Russia's Finance Minister Aleksei Kudrin, the guy who sank a hefty chunk of Russia's hard-earned petrodollars into the likes of Fanny Mae and Freddy Mac (now said to be dead but not yet buried, which makes a stink of sorts inevitable). Right on the eve of last August's "downturn" Aleksei was still telling us gullible Russians that American economy was so strong that nothing, absolutely nothing could shake it.

Then various US financial institutions started going POP! - deafeningly so. Our minister changed his tune so fast it jarred on the ear: things might be going bad for the rest of the world but Russia, with its mighty gold and currency reserves, would remain "an island of stability." One wonders who he was trying to fool, the public, his premier, or himself? What sort of insularity was possible, with half of Russia's currency reserves in US securities (God only knows how many of them "toxic") and Russia's rapacious oligarchs owing Western banks some $500 bln and more.

The island-of-stability rigmarole died a natural death when it was time to take actual emergency measures, like saving the country's banking system by feeding it billions upon billions of dollars and devaluing the ruble. This two-pronged operation, as actually carried out, was also good for a truly Homeric laugh.

As Premier Putin explained to the nation, saving the banking system was absolutely vital as the system provided the lifeblood for the real economy. That's the way things happen in some ideal world, on Mars maybe. Not in Russia. Here, the bankers used those bailout billions to speculate on the devaluation process, salt away the proceeds in offshore safe havens, award themselves obscene bonuses, and generally thoroughly, indecently misbehave.

Someone calculated that as much as two (2) percent of those handouts to the financial institutions reached the real economy for which this "lifeblood" was originally intended. The most hilarious aspect of it all, however, is that no one actually knows how much went where, and there is no way of knowing. "Alas, even we State Duma deputies have so far been unable to assess what part of the country's savings went up in smoke, was irretrievable lost," says Boris Kashin of the State Duma Committee for Financial Markets (Literaturnaya gazeta, 6 Feb 2009).

The indecency of it all was obvious even to innocent bystanders like yours truly. One day I actually caught myself humming an old Harry Belafonte song, "My wife says, ‘Honey, This isn't funny, We losin' money...' " Someone in the government - perhaps the premier himself - apparently had the same idea, and a decision was made to bail out only 295 corporations that were of "strategic importance to Russia," while the rest were more or less left to fend for themselves. With nearly half of the country's gold and currency reserves gone, some might say that it looked uncommonly like locking the door after the stables had been effectively cleaned out - but there are even more amusing aspects to this bailout program.

Never having a good head for, or interest in business, let alone big business, I was dumbfounded to read the other day in Izvestia that many of the corporations on the government list of the country's "most strategically important" companies were not even Russian companies! Isn't that a laugh? Just look at the list.The oligarch Alisher Usmanov's Metalloinvest, # 109 on the "strategic" list, is owned by Gallagher Holdings Ltd based in Cyprus. Roman Abramovich's Evraz Group SA, #104 on the list, is registered in Luxemburg and owned by the Cypriot firm Lanebrook. Other "Cypriot" companies include SUEK, a major coal company, #78 on the list; Complex Energy Systems, Russia's leading producer of thermal energy, #42; and the list goes on and on. My wife regularly goes to Pyaterochka ("Little Five") or Perekrestok ("Corssroads") for our food supplies, and it never entered her head, or mine, that their owner -- X5 Retail Group, #249 on the "strategic" list, is in fact a public Dutch company, Ltd, obliged to observe the Netherlands (that's right, Netherlands) code of administrative behavior...

Why all these offshore registration tricks for what are in fact Russian companies? Elementary, dear reader. In the fat years, they are good for playing hide and seek with the tax authorities, for buying football clubs, yachts superior to the Royal Yacht Britannia, multimillion properties, private jets better than Air Force One, and other luxuries we working stiffs have not the foggiest idea about. When the times turn lean, the oligarchs - mega, medium, and mini - suddenly recall that their assets are in fact in Russia, and they brazenly press Russia's government to bail them out and save them from bankruptcy they had brought upon themselves by their insatiable greed for all those frills, largely paid for by that $500 bln borrowed from Western banks.   

And you know what? Russia will have to bail them out, for to fail to do so means to let those enterprises go to rack and ruin. Okay, the oligarch Prokhorov may have to give up the idea of buying half a billion's worth of a villa on la Rivière, but his workers will have nothing to feed their faces, their and their families'.

What Prokhorov's steel workers, and millions like them, will take into their heads to do about it, should such a contingency arise, is no longer a laughing matter. Not by a long shot. Even Mr. Kudrin's nailed-to-the-mast smile might slip off.