Remembering Boris Fyodorov, a Russian Hero
by Anders Aslund, Peterson Institute for International Economics
Op-ed in the Moscow Times
November 25, 2009
© Moscow Times
A few nights ago when I was in Moscow, one of my friends reminded me that the first anniversary of Boris Fyodorov's death was approaching. We started remembering his extraordinary life, which ended prematurely from a stroke at the age of 50. His life reflects Russia's in the last quarter century.
Fyodorov was my oldest and best Russian friend. We met at a Scandinavian bank reception in 1986 when I worked as a Swedish diplomat in Moscow. To my surprise, I met a large, loud, and self-made 28-year-old Russian economist. He was the Scandinavian desk officer at Gosbank after being educated at the Moscow Financial Institute. Therefore, he read the Financial Times religiously, and knew the world of global finance, which few Russians then did. He also had strong views about everything, which he happily volunteered among the caution of others. We became friends for life.
In the second half of the 1980s, the few enlightened young Russian economists had the world at their feet. Fyodorov was accepted at Moscow's prestigious Institute of World Economy and International Relations, where he quickly completed a doctorate in international finance and later became a professor. He was invited to the 500-day reform program in the summer of 1990. Fyodorov, who was never shy about his self-worth, claimed that he wrote one-third of the program.
This was the time of former President Boris Yeltsin's meteoric rise and Fyodorov was a man cut from Yeltsin's cloth: competent, decisive, and just as big as Boris Nikolayevich. In the fall of 1990, Yeltsin made Fyodorov, then 32, Russia's first modern finance minister. But the ministry could not function as long as the Soviet Union persisted and Fyodorov soon resigned. Somewhat oddly, he served a brief stint in the Economic Department of Central Committee of the Communist Party of the Soviet Union, but the department was quite liberal for that time.
When the European Bank for Reconstruction and Development (EBRD) was established in 1991, Fyodorov was an early employee. He and a young American, Charles Ryan, worked as EBRD investment bankers in St. Petersburg. In the fall of 1991, Boris was Yegor Gaidar's candidate for chairman of the Central Bank, but the Russian Supreme Soviet insisted on its own choice, and Fyodorov was left out.
But Yeltsin stepped up to the plate. When Gaidar presented another candidate as the country's first executive director at the World Bank, Yeltsin exclaimed, "You cannot forget Fyodorov!" Without any further delay, Yeltsin altered the draft decree and appointed Fyodorov.
In December 1992, the self-serving old Supreme Soviet humiliated Yeltsin by ousting several of his young reform ministers, including Gaidar and Petr Aven, now the president of Alfa Bank. Yeltsin took his revenge by making Fyodorov finance minister and deputy prime minister. Fyodorov asked me to co-chair an advisory group together with Jeffrey Sachs, and we relished his work. The year of 1993 was probably the best in his life.
With his enormous intellect and work capacity, Fyodorov carpet bombed the Russian polity with decrees and bills. In his characteristic style, he drafted most decrees and laws himself. He recorded many successes and some failures. He defeated Viktor Gerashchenko at the Central Bank, breaking up the ruble zone that had bred hyperinflation. Incredibly, he succeeded in abolishing most export subsidies that benefited the energy barons. He unified the ruble exchange rate, thus eliminating huge subsidies to the grain importers. He deprived Russia's worst rent seekers of tens of billions of dollars of unjust incomes.
Yet, Fyodorov could not stop Prime Minister Viktor Chernomyrdin from reinforcing his Gazprom monopoly. Although Fyodorov's substantial structural reforms laid the ground for financial stabilization, high inflation persisted. In December 1993, Vladimir Zhirinovsky's Liberal Democratic Party won 23 percent of the vote in the State Duma, shocking the Russian reformers. Fyodorov saw no possibilities to complete his financial reforms so he resigned in January 1994.
He faced the situation squarely, abandoning politics and going into the private sector. Together with his old colleague Ryan, Fyodorov founded United Financial Group, one of Russia's preeminent investment banks, which was sold to Deutsche Bank several years later for a well-deserved profit.
But Fyodorov's interests went far beyond making money. He wrote many books of different kinds. For example, he wrote a large, two-volume historical biography of his greatest hero, Pyotr Stolypin, the foremost economic reformer in tsarist Russia. He also penned two very readable memoirs, one suitably called "The Mad Nineties." Fyodorov expressed his passion for Russia by building a small, traditional Russian mansion with a park outside of Moscow, and he established a farm where he worked himself.
Yet Fyodorov could not get rid of the political bug. He set up a political party of his own and entered the Duma, but he was frustrated with its intrigues and platitudes.
As the 1998 financial crisis approached, Yeltsin called for Fyodorov's assistance again. As tax revenues collapsed, he became head of the tax service. Characteristically, he opted for the hardest tasks. He tried to force the oligarchs to pay taxes, and he even carried out tax raids on Gazprom. Fyodorov laid the groundwork for the government to improve its tax collection efforts. He briefly served again as deputy prime minister, but Prime Minister Yevgeny Primakov was not his cup of tea. In his last memoirs, Yeltsin mentioned Fyodorov as one of his secret candidates as successor.
A few years ago, Fyodorov sounded out his old friends in the White House because, as a Russian patriot, he wanted to improve his country. But they told him candidly that there was no longer any place for him. "Nowadays, everybody has to pay for their posts, and we know you are not prepared to do so."
Instead, Fyodorov successfully entered Russian private equity investment. He had learned to stay away from two things: the Russian state and politics. Today Russia has an outstanding private sector, but the state lags behind because it does not value its heroes.