Vodka Politics (74 page)

The fiasco gutted state-run Rosspirtprom. An audit by the Federal Accounts Chamber concluded that Rosspirtprom’s “financial condition as of 2007 can be characterized as a crisis, in which the company is on the verge of complete bankruptcy.”
⁷⁸
What happened to this once-mighty national champion—the keeper of Kristall and producer of Putinka—that enriched both oligarch and government alike?

For one, much like other national champions, such as Gazprom, Rosspirtprom was overextended and willing to absorb debts by selling its product on credit, especially if it advanced the Kremlin’s strategic interests. This would be a problem only if there was a sudden need for cash. Second, the company’s production lines stood idle from January through March of 2006 while the government tried to clean up its stamp mess. Rosspirtprom made mostly inexpensive vodkas—which when combined with a healthy amount of government taxes, left little profit margin to recoup those lost revenues.

Third—and perhaps most importantly—new regulations required upfront payment from retailers and distributors rather than credit. Suddenly there was that need for cash, and the company couldn’t get it fast enough. When distributors were unable to pay upfront, Rosspirtprom was left holding the bag. With no money on hand they couldn’t even pay their tax bills—another no-no according to the new regulations. With its tax arrears mounting, in July 2006 the Federal Tax Service suspended Rosspirtprom’s license, crippling the addled giant even further with another $13 million in losses.
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Letting Rosspirtprom collapse would have been an embarrassment for Putin: a lucrative national champion suddenly careens into bankruptcy thanks to a disastrously implemented Kremlin policy. Instead, a five-billion-ruble ($165 million) bailout was orchestrated by major state-run bank VTB or Vneshtorgbank. With Finance Minister Kudrin chairing its board of directors, VTB later became a favored target of anti-corruption crusader Alexei Navalny. “VTB is a very good reflection of how business in Russia occurs today,” explained one banking insider, “which is on the one hand state ownership and on the other direction by individuals who are much more concerned about their own wealth than about the benefit to the country or the owners of the institution.”
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In this instance the VTB loan allowed Rosspirtprom to pay its tax bill owed to the government (from which it received the bailout) and enabled it to re-start production. Meanwhile, we can only speculate whether those assembly lines
actually
stood idle all those months or whether the usual third-shift production simply expanded into the first two shifts as well.

While the bailout saved Rosspirtprom from sudden death, it doomed it to a slow, imminent demise. According to the Accounts Chamber, even though the
company sold off assets and its most famous trademarks, the thin profit margins led to a “pitiable state of affairs” in which the company could not pay its massive debts, interest on loans, or even its bills. This is how botched government reforms fatally poisoned both scores of Russians and the country’s single largest vodka producer. Unfathomably, Rosspirtprom could no longer turn a profit selling vodka to Russians.
⁸¹

With Rosspirtprom unable to meet its loan payments, VTB reluctantly disassembled the company, taking control of the various parcels, including the red-brick Kristall factory.
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Like a foreclosed home, a bankrupt factory is of little use to a bank. The Kremlin-controlled VTB needed a loyal investor to take one for the team and buy up these toxic assets. They found another well-connected oligarch, Vasily Anisimov.

A battle-tested veteran of the “wild east” of
mafiya
capitalism in the 1990s, Anisimov masterminded the purchase of nonferrous metals at low, state-subsidized prices and sold them at immense profit on world markets. By 1994 he was vice-president of Rossiisky Kredit Bank, where he bought up lucrative metals firms and exported aluminum with the help of Marc Rich—the fugitive Belgian commodities trader infamously pardoned by President Bill Clinton.
⁸³
At the end of Putin’s first term in 2004,
Forbes
estimated Anisimov’s wealth at $350 million. By the end of his second term, Anisimov had topped $4
billion
.
⁸⁴
Certainly he had benefited tremendously from Putinomics.

Anisimov’s oldest daughter had been brutally murdered in Ekaterinburg in the 1990s, prompting Vasily to send his family to the “backup airfields” of the United States: “If you’re flying high and President Putin decides to confiscate your property, you know you’ve got somewhere to land,” explained one Russian businessman. Living the high life of a billionaire heiress in New York, Anisimov’s teenage daughter Anna soon drew comparisons to Paris Hilton. Together the Anisimovs bonded over developing high-end real estate in Manhattan and the Hamptons.
⁸⁵

Back in Russia, Vasily continued to diversify his interests… into vodka. In 2009 he purchased from VTB the Rosspirtprom properties languishing in bankruptcy for five billion rubles (the amount of the original bailout loan), which included fifty-one percent control over Kristall. In 2010 he upped his stake in Kristall to eighty-six percent, making him the biggest player in the vodka market alongside Putin’s judo partner, Arkady Rotenberg. Of course it is difficult to speculate whether the purchase was informally dictated by the Kremlin, but it is telling that in February 2010 Anisimov got the Putin seal of approval: he was made president of the Russian Judo Federation, even though he never participated in judo or expressed an interest in it.
⁸⁶

Equally telling: in his public pronouncements Anisimov seemed indifferent to his new multi-billion-ruble vodka empire, dourly intending, he said, to “bring
order to the [alcohol] factories.” In a 2010 interview he explained, “We only took them in order to make money.” With a shake of his head he added: “troublesome product.”
⁸⁷

For many factories this meant reorganization. But a different fate awaited the iconic Kristall factory on Samokatnaya ulitsa, a plant that had been integral to centuries of Russian vodka politics. In 2012 Anisimov announced plans to dismantle the factory and relocate the production facilities to a cheaper plot on the outskirts of Moscow. Having spent much time and money investing in properties in the American market, Anisimov apparently determined that the 8.6 hectares occupied by the storied factory on the banks of the Yauza were just too valuable to pass up. And so—that is how the most iconic landmark in the history of Russian vodka is to be transformed into high-end condominiums.
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23

Medvedev against History

We must always remember that today’s present was the future for all those Russian heroes of World War II, who won freedom for all of us. We are reminded that the same people who won over such a cruel and relentless Nazi enemy back then should—
no, must!
—conquer corruption and backwardness to establish a modern and livable country.

The nationalist timbre of 2009’s
Russia, Forward!
manifesto harnessed the glory of Russia’s historic sacrifices to meet the political challenges of both the present and future. “What will Russia be like for my son, and for all of our children and grandchildren? What will be the country’s international position? How can we make Russia richer and more free? I have answers to these questions,” the author paused. “But before I formulate them, I would like to assess Russia’s current situation.”

And that is where the anti-establishment takedown
really
began. Channeling the spirit of some Soviet-era dissident, the author launched into an exposé of Putin-era
stabilnost
. Apparently the global financial crisis—which pummeled Russia far harder than any other G-20 member—prompted some sober political soul searching. Russia, the manifesto claimed, was not living up to expectations: a backward economy reliant on oil, gas, and mineral exports instead of manufacturing and innovation, and everywhere infested with corruption. The roots of these problems are in the people’s “traditional vices of bribery, larceny, sloth and drunkenness, that we should be determined to get rid of.” The failings of Putin’s Russia were not just economic, but political and demographic as well.

The institutions of democratic governance have been stabilized, but they are far from ideal. Civil society is weak; grassroots activism and self-management are too low. Even more problematic: every year there are fewer and fewer of us left.

Alcoholism, smoking, car accidents, lack of access to modern medicine and environmental pollution cut short the lives of millions. And the rate of births can’t compensate for the population decline.
¹

Finally—someone familiar with the intricacies of Russian politics, economics, demographics, and culture was smashing the Putinist facade. Yet—strangely—the man so keen to speak truth to power
was
the power: Russia’s new president, Dmitry Medvedev.

Dmitry Who?

If vodka isn’t the quintessential symbol of Russia, then the bear certainly is. From early tsars unleashing trained bears on unsuspecting subjects and nondrinkers (
chapters 3
and
4
) to Misha, the cuddly bear mascot for the 1980 Moscow Olympics, the bear has grown to symbolize great Russian power. In the political realm, the acronym of Putin’s “Interregional Movement ‘Unity’” was MeDvEd, the Russian word for “bear.”
²
(When it was rebranded “United Russia,” they even kept the bear.) And so it was a complete coincidence that when it came time to anoint a successor after his presidential term limit expired in 2008, Vladimir Putin turned to his own bear—Dmitry
Medved
ev. But who was Medvedev? And how could he be so critical of his patron, Vladimir Putin?

Like Putin, Dmitry Medvedev was hardly predestined for Russia’s top post—he largely “fell upstairs,” as political scientist Daniel Treisman has put it.
³
The only child of college professors, the studious Dmitry earned a law degree from Leningrad State University, where he later taught until 1999. In his youth Medvedev admitted to smoking and drinking but “without fanaticism. I tried it—like everything else, but nothing more.” In a campaign interview he explained how “dad and mom always handled vodka responsibly,” which shaped his own moderation.
⁴
In the St. Petersburg city government under mayor Anatoly Sobchak, Medvedev first met Vladimir Putin—and when Putin rose to the Kremlin administration in 1999, he took Medvedev and a handful of others with him.

After becoming president in 2000, Putin installed his campaign manager/chief of staff Medvedev as chairman of the board of Gazprom, the lucrative “national champion” natural gas company. Among Gazprom’s many acquisitions under Medvedev was the independent NTV television channel of Yeltsinera oligarch Vladimir Gusinsky.
⁵
While still with Gazprom, Medvedev moved into Putin’s Presidential Administration (PA) before being appointed first deputy prime minister in 2005. That same year Putin put Medvedev in charge of Russia’s four National Priority Projects (NPP): high-profile government initiatives to improve public health, education, housing, and agriculture. When Putin decried Russia’s “critical” demographics in his 2006 State of the Nation address, it effectively became a fifth charge for Medvedev’s National Projects Council.

Billed as “Russia’s New Deal,” these National Priority Projects looked like a good-faith effort to use Russia’s petrochemical windfall to address key political shortcomings. Medvedev’s position gave him firsthand expertise on Russia’s debilitating social problems and the state’s efforts to address them. His media image was overwhelmingly positive, as Medvedev ensured that popular initiatives, including pay raises for teachers and doctors, were being fulfilled. But beyond the public relations benefits of doling out thirteen billion dollars in government largesse, the National Priority Projects became just another bureaucracy working in parallel to (but not always in concert with) standard government institutions. As economist Leonid Abalkin lamented, the projects were developed “in private, without engaging scholars and specialists,” and ignored those who had judged the projects’ success—“that is, Russian citizens.”
⁶

Outside of education, the results were disappointing. Fleets of new school busses and ambulances, computers and medical equipment appeared, but they were still just drops in the ocean. By 2008 half of respondents to a Levada Center opinion poll said the projects had not affected them at all, with a similar number believing that the money was ineffectively spent. Indeed, classified American government cables released through WikiLeaks estimated that “between 10 and 30 percent of NPP funds was diverted to kickbacks in return for program award, and thus not spent as intended.” The leaked cables from 2008 concluded that “nearly three years after their launch, and despite Medvedev’s personal involvement, most experts agree that the projects have been too small in scope and have failed to reform social systems in need of deep structural changes.”
⁷

With the storm clouds of global financial crisis looming on the horizon, and an uncertain conclusion to Putin’s second presidential term, 2008 was a pivotal time for post-Soviet Russia. With United Russia’s legislative supermajority at his back, Putin could easily have amended the constitution to allow him a third consecutive term—but he did not. Instead, in late 2007 Putin tapped Medvedev—trusted friend and head of both Gazprom and the National Priority Projects—for the country’s top post. Medvedev immediately announced that he would run for the presidency only if Putin would be his second-in-command prime minister. With two-thirds of the electorate willing to voting for whomever Putin chose, Medvedev easily won the 2008 presidential election with 71.2 percent of the vote.
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