The loans-for-shares scheme

The loans-for-shares scheme was an arrangement through which Russian oligarchs used private credit to seek control of the country’s most valuable public assets. Introduced as the state faced an empty treasury and a consequential presidential election, it joined financial transactions to political calculation: the loans could put natural-resource wealth within reach, while the election determined whether the agreements would survive.

Origins and Mechanism

The scheme emerged amid the rapid market reforms pursued by Boris Yeltsin and Yegor Gaidar. Aware of his own inexperience in economic matters, Yeltsin turned to Gaidar, a young economist from a high-ranking Communist nomenklatura family who professed an intense faith in liberalism. The government moved quickly to impose what it called shock therapy, seeking to force through change before opponents could block it.

Price liberalization produced inflation of 2,600 percent and undermined the parallel voucher-privatization initiative. On September 1, 1992, vouchers worth 10,000 rubles were mailed to every Russian citizen over the age of one. The policy was meant to give citizens a share in national wealth and encourage them to become investors in private businesses. But the vouchers arrived after inflation had made them nearly worthless, and could buy, at most, a bottle of vodka. Many recipients sold them to buyers offering roughly the value of a bottle and a half.

The later loans-for-shares arrangement operated through a different route. Banks belonging to the oligarchs lent money to the state, whose coffers were empty. As collateral, the lenders took shares in major companies that had not yet been privatized, including businesses in natural gas and petroleum. If the government did not repay the loans within a year, the lenders could claim the shares. Because that deadline fell after the presidential election, the arrangement made the political outcome materially important to the prospective owners.

From Privatization to Oligarchic Wealth

The book links the voucher sell-off to the rapid rise of Boris Berezovsky, Vladimir Gusinsky, and Mikhail Khodorkovsky, identifying them as three representative figures among the oligarchs. They were young, intelligent, and energetic, but had grown up in a system that prohibited the business activity at which they excelled. The sudden permission to pursue it came without established rules, laws, a banking system, or taxation. The narrative describes this regulatory vacuum as a Wild West.

The loans-for-shares scheme offered the oligarchs a further opportunity to obtain assets beyond the small sums represented by individual vouchers. Natural gas and petroleum are presented as the country’s true riches, and the collateral arrangement put those resources within reach of private banks if the state failed to repay. The account emphasizes the asymmetry: citizens’ vouchers had lost their value before they could serve their stated purpose, while well-connected financiers could negotiate over the still-unprivatized assets behind them.

The Election and Media Power

The approaching deadline made the oligarchs anxious about the possibility of a Communist victory. Five years earlier, Yeltsin had declared the Communist Party illegal, but after five years of democracy, market reform, and associated injustice, polling showed widespread willingness to vote for it. Gennady Zyuganov campaigned not on restoring the Gulag or rebuilding the Berlin Wall, but on opposing corruption, affirming national pride, and promising to narrow the gap between rich and poor. The oligarchs feared that a president elected on that platform might repudiate the loans-for-shares agreement.

At the 1995 Davos World Economic Forum, Zyuganov attracted journalists and advisers who treated him as a possible future ruler of Russia. George Soros warned Berezovsky that the oligarchs could face danger, even exile to Siberia. Berezovsky then called six of Russia’s most powerful oligarchs and urged them to set aside their rivalries, including the violent conflict between his and Gusinsky’s hired forces, to secure Yeltsin’s reelection. Together, the seven oligarchs deployed their financial resources and media influence in support of Yeltsin.

Their campaign reached newspapers, radio stations, and television channels, which repeated the message that the alternatives were Yeltsin or chaos and a return to the past. Documentaries about the Gulag, the famine Stalin organized in Ukraine, and the Katyn Massacre were broadcast repeatedly; films about the purges were also commissioned, including Nikita Mikhalkov’s Burnt by the Sun. The scheme itself concerned loans and collateral, but the election campaign reveals its wider political setting: oligarchs whose prospective ownership depended on the government used concentrated media power to influence who would govern.

Political Legacy

The scheme’s one-year repayment deadline placed its resolution beyond the election, giving the oligarchs a direct stake in Yeltsin remaining in office. The text does not treat their alliance as a permanent reconciliation: Berezovsky and Gusinsky’s conflict was severe enough to require them to put their differences aside temporarily. Their cooperation was organized around a shared political and economic interest.

As Yeltsin’s second term neared its end, the oligarchs again looked for a successor who would cooperate with them. Berezovsky proposed Vladimir Putin, then a little-known former intelligence officer who had quietly headed the Federal Security Service for the preceding year. Berezovsky presented Putin’s loyalty to superiors as his chief qualification and assured him that the oligarchs would help. This later search for a dependable successor is not described as a clause of the loans-for-shares arrangement, but it extends the book’s account of oligarchic influence: wealth accumulated and protected through political decisions created continuing incentives to shape who held power.