Russia's loans-for-shares scheme

Russia's loans-for-shares scheme joined privatization to electoral power: banks lent money to an impoverished state and received shares in valuable, still-unprivatized companies as collateral. If the state failed to repay the loans on schedule, the lenders could take the shares. In the account of the scheme, the arrangement enriched a small group of oligarchs and made Yeltsin's continued presidency essential to protecting their prospective acquisitions.

Economic design and political setting

The scheme emerged from the upheaval of Boris Yeltsin's market reforms. Aware of his own lack of economic expertise, Yeltsin appointed Yegor Gaidar, a young reformer from a high-ranking Communist nomenklatura family who held an emphatic faith in liberalism. Their declared aim was to move quickly enough to push market reforms through before opponents could stop them. Price liberalization produced inflation of 2,600 percent, however, and the resulting instability shaped the environment in which state assets changed hands.

A failed voucher initiative had already exposed how rapidly the reform's promise could be separated from its practical value. On September 1, 1992, every Russian citizen older than one was sent a voucher worth 10,000 rubles, intended to represent a share in national wealth and to turn citizens into investors. By the time the vouchers arrived, inflation had made them nearly worthless: at most, a recipient could exchange one for a bottle of vodka. Many sold them cheaply to buyers who recognized an opportunity. The book identifies Boris Berezovsky, Vladimir Gusinsky, and Mikhail Khodorkovsky among the resourceful purchasers who would become multibillionaires within months. This voucher episode is presented as part of the wider privatization upheaval, distinct from the later loans-for-shares mechanism.

Under loans for shares, the state, whose coffers were empty, borrowed from banks. Shares in valuable companies not yet privatized—including businesses in natural gas and petroleum—served as security. If the state did not repay the loans after a year, the lenders could claim those shares. The timing gave the arrangement a political edge: repayment would come due after the presidential election, so the people expecting to take control of the collateral had reason to care about who won.

From collateral to concentrated wealth

The stakes were not abstract. The companies offered as security controlled natural resources described as the country's true riches. The account presents the deal as a route by which a few financiers could gain ownership of assets with enormous earning power, rather than as a broad transfer of wealth to the citizens whose vouchers had lost their value. The difference between the two privatization efforts is stark: the voucher program nominally distributed a claim to every citizen, while loans for shares concentrated the decisive opportunities among lenders able to finance the state.

The later scale of the resulting fortunes gives the mechanism a concrete measure. Mikhail Khodorkovsky paid $168 million for the oil company Yukos, which brought in $3 billion a year. The oligarchs' wealth rested on raw materials rather than technological production; in the narrator's account, it generated no public wealth and flowed into opaque offshore networks in places such as Liechtenstein and the Cayman Islands. The deal therefore appears not merely as a method of privatizing firms but as a means of concentrating control over profitable assets while separating the proceeds from ordinary public life.

That concentration existed alongside conspicuous hardship. During Yeltsin's second term, the 1998 crash wiped out the meager savings of people who had already lost them once that decade. The book contrasts those stunned, impoverished spectators with wealthy young men shielded by bodyguards, flying private jets to Courchevel and filling Jacuzzis with Veuve Clicquot. Such images place the fortunes associated with the scheme inside a wider social rupture: the new wealth was visible, extravagant, and radically unevenly distributed.

Election finance and media power

The prospect that Gennady Zyuganov might win the presidency made the scheme's political implications immediate. Five years earlier, Yeltsin had declared the Communist Party illegal; now, after widespread disillusionment with democracy, the market, and the injustice accompanying it, polls suggested that voters might support the Communists in large numbers. Zyuganov was not campaigning to restore the Gulag or rebuild the Berlin Wall. He appealed instead to anger at corruption and inequality, national pride, and a promise that the rich would become less rich and the poor less poor. To oligarchs with loans-for-shares agreements at stake, even that limited promise threatened their interests.

At the 1995 Davos World Economic Forum, Berezovsky saw signs that Zyuganov was being treated by journalists and political advisers as a plausible future ruler. A conversation there with financier George Soros sharpened his sense of danger. Berezovsky then called six of Russia's most powerful oligarchs and urged them to set aside their rivalries and work together to secure Yeltsin's reelection. Those rivalries were not merely personal: Berezovsky's and Gusinsky's armed groups were killing one another. Their agreement was therefore a temporary political alliance among competitors whose shared financial stake outweighed their ongoing conflict.

The alliance could turn ownership of media into an electoral instrument. The oligarchs brought their financial and media influence to bear across newspapers, radio, and television, which repeatedly framed the choice as Yeltsin or chaos, or a great leap backward. The campaign also broadcast documentaries about the Gulag, the famine organized under Stalin in Ukraine, and the Katyn Massacre, and commissioned films about the purges. In this telling, loans for shares helped connect a private financial interest to a nationwide political message: the oligarchs sought not only to acquire assets but also to shape the conditions under which their ownership would be secured.

Political legacy

The book links the oligarchs' economic leverage to the search for a compliant successor as Yeltsin's second term neared its end. Berezovsky proposed Vladimir Putin, then an obscure former intelligence officer who had quietly headed the Federal Security Service for the previous year. Berezovsky valued his record of loyalty to superiors and presented him to fellow oligarchs as someone they could influence. The account thus carries the scheme's political logic beyond the election itself: concentrated wealth had made the oligarchs consequential participants in choosing the next leader, not just beneficiaries of privatization.

The scheme's significance lies in that convergence of state debt, natural-resource ownership, and political influence. The state offered valuable shares to secure urgently needed loans; the election determined whether the prospective owners could expect the deal to stand; and the oligarchs' media reach helped them intervene in that election. The sequence does not make every later political development a direct consequence of loans for shares, but it shows how a privatization arrangement could place public assets and electoral power within the same small circle of interests.