A Talk With Anatoly Chubais

The privatization czar is under fire again

For his entire six-year political career, Russia's First Deputy Prime Minister Anatoly B. Chubais, 42, has been at the center of controversy. In 1992, he launched Russia's privatization program, criticized as a giveaway of people's property. In 1994, he fought hyperinflation, angering factory directors accustomed to heavy state subsidies. His most vilified program came in late 1995, when he sold some of the biggest state oil and metals companies to commercial banks at bargain prices.

Now, Chubais is under attack for trying to introduce privatization via competitive tenders. The controversy was sparked by the government's recent sale of 25% of Svyazinvest, a newly created telecommunications giant, to a consortium including Russia's Oneximbank and investor George Soros. Losers are crying foul. BUSINESS WEEK's Moscow Bureau Chief Patricia Kranz and European Edition Editor Rose Brady spoke with Chubais in the Russian White House:

Q: Can Russia really be described as a free market now, or does the government still control the economy through its links with business and banks?

A: I think that relations between government and business are moving into a new stage. Until mid-1996, the fundamental historical problem for Russia was communism vs. capitalism. I really believe that this historical problem is now solved. The next stage is introducing rules that are binding on everybody, regardless of the scale of the business or the role of the business leader in the political life of Russia. I believe that's the only way to civilized captalism in Russia.

Q: Do you agree that the Russian economy is run by an oligarchy of banks-- one that has been dubbed the Group of Seven?

A: I don't think it's a bad thing that Russia has seven major banks. Instead, I think it's bad that other businesses are not strong enough. I think the policy that we are obliged to support is the policy that will give any business a chance.

Q: Some people criticize you for favoring Oneximbank, which won the bidding for Svyazinvest.

A: That criticism is usually made by the bank that loses some special privileges because of my decisions, which is understandable. We suggested strict rules for the auction for Svyazinvest. The starting price was $1.2 billion, but the final price was $1.85 billion. This demonstrates that there was real competition. And someone lost this competition. They could be unhappy about it.

Q: If you look back to 1992, how does today's Russian market economy compare with your original vision?

A: Some of it is much more optimistic than I could have predicted. First of all, if you had told me in 1992 that in five years we would have 80% of gross domestic product produced in the private sector, I wouldn't have believed you. If you had told me in 1992 that in January, 1995, we would have monthly inflation of 18%, I wouldn't have believed you. Finally, if you had told me in 1992 that I would still be in the government in mid-1997, I would have laughed.

Q: What is your assessment of Russian industry right now?

A: The fall in production continues in domestic appliances, televisions, and things like that. But in some other branches of the economy, such as oil production and housing construction, there's growth. And if you look at other indicators--for instance, capitalization on the Russian securities market--it has doubled in the space of six months. Or compare the amount of foreign investment in Russia. For the first half of 1996, it was $2 billion. For the first half of 1997, it's $6 billion.

Q: We have heard that businesspeople are pressuring President Boris N. Yeltsin to fire you. Is that true?

A: Every day someone puts pressure on Yeltsin to get out of the government. It means that things are going right.

Q: Yeltsin announced that he will not run for President again. Will you?

A: No.

Q: Who would be your favorite?

A: I would only support the candidate who had the support of Boris Yeltsin.

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