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If `Reform' Is A Dirty Word, `Privatization' Is Downright Filthy (Int'l Edition)


International -- Int'l Business: RUSSIA

IF `REFORM' IS A DIRTY WORD, `PRIVATIZATION' IS DOWNRIGHT FILTHY (int'l edition)

The program is under fire from all sides in Russia

Until recently, there was little question that Russia's privatization program has been one of President Boris Yeltsin's biggest successes. By the end of 1995, Yeltsin and his aides could congratulate themselves on pushing 70% of the Russian economy into private hands.

But privatization has suddenly become a big liability. Everyone from blue-collar workers to top industrialists is taking aim at the program. The main charge is that it has enriched the government's cronies, particularly bankers who got lucrative stakes in big companies in exchange for small loans. Some of the critics are powerful figures who haven't yet benefited from privatization and want a shot at the state's wealth.

With presidential elections looming in June, even some members of Yeltsin's government are attacking privatization in a bid to score points with a discontented electorate. The big Communist win in December parliamentary elections showed that reform has become a dirty word for many Russians. They partly blame privatization for social and economic ills and believe that renationalization would bolster their wages. Communists say they will renationalize some energy, defense, and transportation companies. Ultranationalist Vladimir Zhirinovsky, a presidential aspirant, is also taking aim at energy companies.

WITCH HUNT? Even Yeltsin has not been above maneuvering to co-opt the critics. One of his first actions after the December election was to fire Anatoli B. Chubais, architect of the privatization program. On Feb. 13, Yeltsin's Interior Minister, Anatoli Kulikov, chimed in by proposing to take over Russia's energy companies and its top five commercial banks to give the state control of their funds and revenue streams. During the same week, the Prosecutor General launched a probe that could lead to the reversal of some of the scandal-plagued privatizations. There are also fears that it could turn into a political witch hunt.

Beyond the electioneering, privatization is caught up in a fierce battle among the power elite. Many industrialists and politicians whose stars are rising contend that much of the state's wealth was sold off too early and too cheaply. Some people in the group, which is led by Deputy Prime Minister Oleg N. Soskovets, are also worried about being dumped from their management jobs by the new owners. "The military-industrial complex is pushing Soskovets to be tough," says Charlie Ryan, investment banker at Moscow's United Financial Group. "They would like to undo everything and reprivatize so they can get a piece for themselves."

The battle reaches to the very top. Soskovets is pitted against his nominal boss, Prime Minister Viktor S. Chernomyrdin, who for many years ran Gazprom. Executives at energy behemoths such as Gazprom and Lukoil are his close allies. Privatization gave these people rich stakes in their companies--so they are big fans of the sell-offs. But with Chubais gone, the Soskovets faction has been strengthened.

SWAN SONG. The future of privatization--and whether it will be rolled back--rides on the June election. Although there will be dozens of candidates, it is expected to boil down to a two-horse race between Yeltsin and Communist leader Gennady Zyuganov. If Zyuganov wins, he may try to placate constituents by staging high-profile renationalizations. But even the Communists know they can't afford to run a totally renationalized economy. "No one is going to destroy successful private enterprises by renationalizing them," says Gennady Seleznyov, the new Communist speaker of the Parliament.

One arena where even Yeltsin may have to act is the so-called loans-for-shares scheme. This turned out to be a disastrous swan song for Chubais, who conceived the program as a vehicle for quickly raising money for the state. Banks were to lend the state money in exchange for stakes in state companies. But the deals struck late last year smacked of favoritism and corruption--and brought in little revenue. The scandal tainted the entire privatization program. Indeed, the Communist-led Parliament recently demanded that the government take back its former 51% stake in Norilsk Nickel, a monster mining operation. The stake was handed to Oneximbank, Russia's largest private bank, for a mere $170 million loan.

As the presidential campaign swings into high gear, attacks on privatization and other reforms are bound to become even more strident. But only after the June elections will investors and Russian citizens be able to sort out how much of the barking about privatization will turn into bite.BY PATRICIA KRANZ IN MOSCOW


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