Evolution, Problems and Prospects
New Horizons in Money and Finance series
Edited by David Lane
Chapter 6: Banks and the Loans-for-Shares Auctions
Duncan Allan1 The ‘loans-for-shares’ auctions in November and December 1995 involved the quasi-privatization of some of Russia’s most prized state-owned ﬁrms to well-connected business groups, primarily banks, amid accusations of corruption and insider-dealing. The most widely-accepted explanation for this saga, one of the biggest public scandals of the Yeltsin era, has been presented to greatest eﬀect by Chrystia Freeland: At heart, the loans-for-shares deal was a crude trade of property for political support. In exchange for some of Russia’s most valuable companies, a group of businessmen – the oligarchs – threw their political muscle behind the Kremlin. What made that bargain a Big Idea and not just run-of-the-mill corruption was its scale. Over the course of four months [sic], the government privatised the behemoths of the Russian economy – a half-dozen huge enterprises, including the world’s dominant producer of nickel and several reserve-rich oil companies – selling them for a fraction of their potential value. It was the sale of the century. The motivation for the carve-up, according to Freeland, was straightforward: [L]oans-for-shares was implemented for one central reason – because the government in general and the young reformers (who still controlled the privatisation process) in particular took the calculated gamble that this was the Big Idea which could save Russia’s capitalist revolution. Loans-for-shares bought Yeltsin the political, ﬁnancial and strategic support of the future oligarchs in the upcoming presidential elections. It meant pawning Russia’s crown jewels, but if that was the price of keeping the communists out of the Kremlin, the young...
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