Prikhvatizatziya

1
Prikhvatizatziya

• Andrew Brown

2
Outline

• Mass Privatization
• Loans-for-Shares
• Economics
• Politics

3
Mass Privatization

• 1991 First privatization laws passed
• October 1992 Amended privatization laws
• December 1992 Start of auctions
• December 1992 Yeltsin/Gaidar government sacked
• PM Viktor Chernomyrdin spoke of privatization as
  a crime
• June 30, 1994 End of Phase I
• July 22, 1994 Yeltsin announced Phase II

4
(No Transcript)
5
Mass Privatization

• Rapid, Voucher system
• Why?
• Diversification of ownership
• Popular for the distribution of wealth
• Price of transaction costs
• Time constraint

6
Mass Privatization

• Difficulties
• Managerial incentive
• Public incentive
• Time
• Poland privatized smaller firms and moved in a
  staged privatization
• 1990 First law, 1995 First sale
• Russia did not have this luxury
• Irregularities

7
Loans-for-Shares

• 1995 Russian government wanted to raise revenue
• Lack of Tax Reform
• Vladimir Potanin (Oneksimbank)
• Bank would loan Russian government funds and the
  collateral would be shares to be auctioned off

8
Loans-for-Shares

• Example Yukos
• Mikhail Khodorkovsky and Menatep
• Savvy black market business man
• Bank Menatep financed Chechen war, among other
  projects
• 350 million US loan
• Failing, Yukos (Formed in 1993) sold at auction
• 1997 market capitalization 9 billion US

9
Loans-for-Shares

• Provisions of program
• Irrelevant
• Entrenchment of oligarchs
• Potanin Deputy Prime Minister
• Boris Berezovzky Deputy Secretary to National
  Security Council (Sibneft Oil)
• Roman Abramovic cashier of Yeltsin
  inner-circle (Sibneft Oil)

10
Economics of Russian Privatization

• Ownership of enterprises from Mass Privatization
  (1995)
• Insider 56.3
• Outsiders 23.3
• State 20.4
• World Bank
• This does not account for the type of shares
  and size of company
• Today 75 of firms are privatized (Ernst Young)

11
Economics of Russian Privatization

• Measuring performance of the recently privatized
  companies is difficult for multiple reasons
• Socialist history
• Bad accounting practices
• the good manager will achieve zero profit
• Price fluctuation

12
(No Transcript)
13
Economics of Russian Privatization

• Labor productivity
• Firm level
• National level
• Labor productivity gain, 1989-1998
• Hungary (Gradual) 29
• Poland (Gradual) 36
• Czech Republic (Rapid) 6
• Russia (Rapid) 33
• Source Economic Commission on Europe, Economic
  Survey of Europe, 1999

14
Politics of Russian Privatization

• John D. Rockefeller, Potanin, Berezovzky, and
  Khodorkovsky
• Restructuring and Profitability
• Tax bill, FY 1999 1.17 billion US
• Large-scale sellout of state property was not
  always based on common sense and economic
  reasons, quite often this was being done for
  political reasons Vladimir Putin, 2003

15
(No Transcript)
16
Politics of Russian Privatization

• Former KGB element re-nationalizing
  enterprises?
• Putin vs. Mikhail Khodorkovsky
• Arrested at gun point
• Yukos auction
• Today we made the decision to join the Third
  World, Andrey Illarionov, 2004