The Journal's Russia Scandal
Unfortunately, none of the "experts" Liesman spoke to were ever very interested in advertising Russia's problems to the Western investors who read his paper. Ultimately, this was the key to the Journal's failure. While Western businessmen on the ground in Moscow saw the disaster of the Russian state in action--evident in their mass flight from Russia's capital markets beginning in late 1997--Journal readers abroad were taken completely by surprise when catastrophe struck. As late as June 1998, when Russia's capital markets teetered on the edge of collapse and worker protests over nonpayment of wages paralyzed rail travel across the country, the Journal was still dismissing Russia's troubles as fallout from a few logistical glitches. In a June 5 article, Liesman argued that the crisis had its roots at least partially in a scheduling blunder by one of then-Prime Minister Sergei Kiriyenko's underlings:
Moscow--In the story of how Russia's markets collapsed in May, give at least a couple of paragraphs to a simple mistake by a provincial government aide.
It happened that Lawrence Summers...requested a meeting with Prime Minister Sergei Kiriyenko. But an aide to the youthful new prime minister...knew only that this Mr. Summers was a deputy secretary of the treasury--a title unworthy of an audience with a Russian prime minister.
Word leaked out that the two had failed to meet.... Over the next two weeks, a bad situation worsened, as ruble-holders rushed to convert to dollars, stock prices plunged, and a near panic brought Russia to the brink.
At the time this article was written, Russia was experiencing major unrest. The last remaining investors were pulling out en masse, markets were collapsing and the debt bubble had grown so large that no new IMF loan could possibly save it. But Liesman, apparently eager to reassure his readers, attributed May's financial tremors mainly to PR gaffes--as well as the Asian financial crisis:
Until the most recent troubles in Asia--riots in Indonesia, more evidence of Japan's deep ennui, a nuclear race on the Indian subcontinent--Russia appeared to have escaped the ravages of the Asian monetary maelstrom. Its notoriously poor tax collection was improving. Economic data showed growth for the first time in seven years. Credit Suisse First Boston declared the country a buy. Boris Jordan, an American who has become one of the biggest players in Russia's stock market, went on vacation to Disney World.
Two things bear mentioning here. One is that before the crash, pro-reform journalists like Liesman often justified placing a positive spin on the Russian economy by noting that their sources in places like Credit Suisse were constantly pumping up Russia as a hot market. The brokers, the thinking goes, were the experts--so how could a reporter be remiss by trusting them? Answer: very easily. Any good business reporter knows that few stock analysts or brokers in emerging markets will go on the record as saying anything negative about their host country's economies--because if they do, no one will buy into its market. Asking a Credit Suisse trader in Moscow to be straight about the Russian market is like asking a Ford dealer to compare a Taurus with a Lexus honestly. Quoting analysts is fine to get the bright side of a story, but a responsible reporter looks for hard economic data for balance--and this is what was consistently missing from the Journal's coverage.
The second fact worth mentioning is that the Russian State Statistics Committee was notoriously unreliable. In fact, its chief, Yuri Yurkov, was fired for fudging statistics shortly after Liesman's June article appeared, news that went largely unreported in the Western press. In contrast, when the much-vilified anti-IMF president of Belarus, Alexander Lukashenko, announced a 10 percent rise in GDP for 1997, the news was greeted with widespread skepticism in the West. A Moscow Times story, for instance, was headlined "Belarus Growth a Question of Statistics" and speculated that Lukashenko might be "cooking the books." Russia got no such treatment in the reform era. The most revealing passage in the June article by Liesman was the line about Disney World. Thousands of people were sitting on train tracks to beg for their wages, and Liesman was writing about one rich American's plans to travel to Disney World.