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. Last Updated: 07/27/2016

Chubais: Still a Shrewd Operator

At the beginning of this week, deposed first deputy prime minister Anatoly Chubais wrote a "personal view" in the London Financial Times. By all assessments, the piece was remarkably even-tempered, most of it a sober history of the government's economic policy gains during 1995. In light of his recent scapegoating, as well as the personal sweat involved in the economic progress he describes, the temptation must have been to write a fully blown invective. But surviving as long as he did, Chubais developed the nose of a shrewd tactician. And his measured statement should be viewed in a tactical light.


Almost three weeks ago, in the immediate aftermath of his exit, Chubais was publicly adamant that reforms would be completely unaffected by his departure. "The government will stick to the same economic course," he said. The message: One man maketh not policy.


Although carefully stated, the article contained a slight change of tune. A crucial last paragraph -- the sting in the tail -- pointed to the dangers of increased government spending in the run-up to presidential elections in June. Chubais not only admitted an expenditure hike could happen; he predicted that if such an increase took place, it would court financial collapse. The Financial Times is a very public place to have a change of tune, particularly during the Davos meeting of the World Economic Forum, and particularly if, to high-ranking Western ears, you are the ultra-authoritative source on Russia's medium-term economic prospects.


The dead economic tsar, it seems, is operating beyond the grave. By drawing public attention to both the possibility and the dangers of populist spending, Chubais is exerting pressure on the government by remote control. Before his resignation, the $9 billion International Monetary Fund loan was all but signed. His departure puts the deal in jeopardy.


On the Russian side, renewed doubt over a deal that appeared to be done, and which in terms of policy targets was practically a foregone conclusion, has put the youthful IMF negotiating team -- Messrs. Vavilov, Vasiliev, Vyugin et al -- in a spin. Losing the deal would discredit them individually, as well as handing conservative forces in the Duma bundles political capital. At the forefront of their collective mind will be the thought that unless they secure money from Washington, Yeltsin may decide cerebral reformist types have outlived their usefulness.


Chubais' demise also places the IMF in a quandary. Vulnerable to future accusations of "losing" Russia, the Fund is reluctant to walk away. But increasingly under scrutiny from a penny-pinched U.S. Congress, it cannot be seen to be throwing money down "foreign rat holes" with no reform prospects, especially governments on populist spending sprees.


Chubais' commentary is partly designed to remind those among his proteges who are hosting the IMF in his absence of their reformist priorities. By adding his voice to the recent expenditure fears voiced in the West -- despite the considerable slack he personally built into the budget in the form of the 1.9 percent monthly inflation assumption -- he has "confirmed" that the expenditure dangers are real. Chubais has knowingly presented the IMF with the necessary leverage to tighten conditions on the loan.


Specifically, the Fund may now be able to get policy conditions on the loan that extend beyond the usual macroeconomic hurdles -- inflation, budget deficits and the like -- and into the realm of privatization, bankruptcy and stock-market infrastructure. Such microeconomic technicalities are Chubais' true passion, his "policy pets," rather than the broad pillars of macroeconomic stabilization. Furthermore, his genuine personal view is that such structural reforms are the major reason macroeconomic stabilization in Russia remains elusive.


Consequently, Chubais has written a piece loading the deck in the IMF's favor. If the Chernomyrdin government wants the IMF money, the Paris Club debt deal and all the rest, it will jolly well have to heed the Chubais path of corporate governance, shareholder custody and taxation reform. All power to his elbow.


Chubais is aware, though, that harsh words from him and a Republican-controlled U.S. Congress may cause the deal not to happen at all. This is particularly the case given the electoral eggs President Clinton has in his pro-Russia basket. Scuppering the IMF deal is not Chubais' intention for a minute. He has fought too hard and for too long to do anything seriously undermining Russia's reform effort. This is one reason why, despite the temptations, he has made a measured statement, rather than writing a bitter invective.