The Journal's Russia Scandal (Page 2)

Moscow

Liesman, 36, a bombastic, balding New Yorker whose amateur blues band played a few coolly received gigs in Moscow clubs in his early years here, is still well known in the Moscow press corps as a sort of caricature of a typical Moscow-based US correspondent--a loud presence at press conferences and a knee-jerk anti-Communist. Despite having lived in Russia since 1992, when he came to work for the English-language Moscow Times, Liesman was still using a translator in 1998, the year he left.

"I wasn't the only guy who was [working with a translator]," he said. "A lot of guys were doing that." When reminded that he was the only one of those "guys" who had won the Pulitzer Prize, he conceded, "Well, that's a point."

Like many of the more linguistically challenged members of the foreign press corps in Moscow, Liesman fell into the classic trap of making one small group of English-speaking Russian politicians his most trusted source of information. That clique--including privatization czar Chubais, early Prime Minister Yegor Gaidar and allies of theirs like onetime property chief Maxim Boycko--was often referred to by Russia observers as the "St. Petersburg Mafia" (most of the group came from the northern capital). This group sold itself to the Western press as the vanguard of the anti-Communist, pro-Western movement and nudged reporters like Liesman into portraying any criticism of their policies as aid to the Communist movement.

Liesman's unwillingness to report any negative news associated with the St. Petersburg Mafia first became glaringly obvious in early 1996, when he called privatization "the most successful and important of Russia's reforms." Part of the privatization effort that Liesman praised, the notorious "loans-for-shares" auctions, had just created a national scandal due to their overt criminality; it had forced loans-for-shares architect Chubais out of government. In these auctions of huge stakes in key Russian enterprises, Kremlin insiders decided the winners in advance, often helping out by padding their bids with government funds. These auctions instantly created a super-rich clique of monopolist "robber barons"--many of whom were much-vilified names in the US press this past summer, when they began appearing in connection with investigations into the Bank of New York scandal.

The criminality of these auctions was well detailed in the Russian- and English-language press: Izvestia, for instance, reported that $50 million in Ministry of Finance funds had been transferred to Bank Menatep before the latter won a huge stake in the oil company Yukos, and more than one paper noted the curious anomaly of two banks (Stolichny Bank and Menatep) guaranteeing each other's bids in a "competitive" auction for a stake in the oil company Sibneft. The winning bid in that auction was just $100.3 million, despite the fact that the company, which at the time produced more than 22 million tons of crude per year, was clearly worth a lot more. Most observers at the time believed that the sweeping victory by the Communists in the 1995 parliamentary elections was at least partly fueled by public disgust over these bogus auctions. And every sane observer recognized that the auctions represented a profound step away from the Western capitalist model. Even the cautiously neoliberal Moscow Times criticized the auctions in a December 30, 1995, editorial: "As more than one commentator has said, this isn't capitalism as the country ought to know it.... While it goes on, and there is no reason to think that it will stop, economic growth will be held back, and cronyism and cartels will prevent meritocracy and open markets."

Liesman didn't see it that way. His Journal coverage ignored the auctions' reported improprieties and dismissed their critics as Communists and political malcontents. In a February 7, 1996, article, for instance, he compared the criminal investigations into loans-for-shares to "show trials": "The [investigations] are at least partly political.... Some in Moscow's financial circles even anticipate show trials that would sacrifice a few privatization deals to mollify the opposition and save the rest of the program." In an interview for this article, Liesman said he believed, and still believes, that loans-for-shares was, relatively speaking, a success--or at least preferable to the alternatives. "It's in your opinion that [loans-for-shares] wasn't successful," he said. "To me, if you ask me, what was the alternative? Keeping it in state hands?" Liesman added, "Do I stand accused of being on the Chubais bandwagon? If so, I plead guilty. Just like the United States government, and just like every other expert we spoke to."

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