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‘A question of national sovereignty’ A new documentary looks back at the birth of Russia’s modern economy, arguing that liberals, not hawks, established Moscow’s global independence

Source: Meduza
Dmitry Azarov / Kommersant

“Fortress,” a new documentary series from the Russian streaming service “Start,” recounts former Finance Minister Alexey Kudrin’s role in the Russian market reforms of the 1990s, the economic stabilization efforts of the early 2000s, and Russia’s response to the 2008 financial crisis. Kudrin led the Finance Ministry from 2000 to 2011, in addition to serving as deputy prime minister. In the film, notable Russian economists and government officials such as Mikhail Mishustin, Dmitry Medvedev, Anton Siluanov, Herman Gref, Elvira Nabiullira, and Anatoly Chubais discuss Kudrin and his role in building Russia’s modern economy. Director Alexey Kazakov and producer Alexey Bokov based the film loosely on Evgeniya Pismennaya’s book “The Kudrin System.” Meduza’s Dmitry Kartsev watched all three episodes of the series. Here’s what stood out.

Gref’s last resort

Much of Kazakov’s film focuses on the atmosphere among powerful officials in the early aughts, immediately following Vladimir Putin’s first presidential election. While the mythology surrounding Yegor Gaidar, who led President Boris Yeltin’s economic reforms in the 1990s, is well-documented, “Fortress” is one of the first major attempts to tell the more “human” story of Putin’s reforms. Rather than repeating the trope of the “restoration of the state after the wild nineties” that is common in official propaganda or the “liquidation of democracy and destruction of freedom” idea favored by the opposition, it presents the reforms through the eyes of the liberal camp of Putin’s inner circle, for whom it was a “time of hope and a period of romanticism and inspiration,” in Central Bank head Elvira Nabiullira’s words.

“Fortress” doesn’t mention Mikhail Kasyanov, who served as Putin’s first prime minister before later joining the anti-Kremlin opposition. In that first government, Kudrin was finance minister and Herman Gref was economic development minister. According to Kudrin’s wife Irina, a former journalist and currently Anatoly Chubais’s assistant press secretary, she sometimes had to “resuscitate” Kudrin after his meetings with Gref; at the same time, she refers to their partnership as the “most productive” in the government. “At least half of the guys in the government like Kudrin and Gref would rather live in a different country,” says Bella Zlatkis, currently Gref’s deputy chairman at Sberbank.

At one point in the film, Gref himself recalls an argument with Kudrin about setting the unified social tax (ESN) rate. In the early 2000s, it was decided that ESN would replace the multiple payments employers deducted for retirement, health care, and social services. Altogether, these deductions were 36 percent of an employee’s salary; Gref proposed setting the ESN rate at 20 percent, while Kudrin wanted 34 percent.

After witnessing yet another argument between Gref and Kudrin, Gref says Putin once told Alexander Voloshin, then the head of his administration, to “lock them up until they agree.” Voloshin told the ministers to lay out their arguments on whiteboards. “I flipped my board around and realized that writing out my arguments one more time would be no use,” Gref recalls. Instead, he scribbled down a quatrain:

All these tax rates, fees, and tariffs

Based on doubts and speculation,

While we’re fighting like barbarians

For our errors’ variation

Initially, Kudrin didn’t even look at his opponents’ board. “What was there for him to look at? He knew all of my arguments by heart,” said Gref. It was only when Voloshin broke out laughing that Kudrin glanced at what Gref had written and couldn’t hold back his own laughter. “Alright, let’s do 30 percent,” he said. “Twenty-eight,” said Gref, and Kudrin agreed. 

Mr. Putin to the rescue

The high-ranking officials who appear in “Fortress” describe the Russian tax system as one of the government’s greatest accomplishments of the early 2000s. Anatoly Chubais says it turned out “several times better than the American one.” This achievement relied on cooperation as well as debate: together, Kudrin and Gref pushed for things like a new tax on mineral mining. According to Gref, major oil companies were not happy with the proposal. He says “a representative of the company Yukos” approached him on the night before the new law was to be discussed by the Duma and told him that they’d made an agreement with all of the deputies. As a result, the ministers were given a choice: they could either not take the proposal to parliament, or they could “be taken out [feet first],” after which the company would demand their resignation from Putin “due to professional incompetence.”

Gref called Kudrin and found out that he’d also been visited and threatened. “I suggested we not go tomorrow, but he said they’d have to take us both out. That was one of his traits — in hard times, he doesn’t quit,” said Gref. In the end, the legislation failed miserably, and the two ministers went out for vodka at 11 a.m. Putin ended up interrupting their conversation. “I know what happened. Where are you?” “We’re at a restaurant.” “What are you doing?” “Drinking vodka.” “Well, good, maybe you’ll get drunk and not lose your minds.” Afterward, Putin promised they would work together to keep “pushing the issue.” Gref says the president’s support was “key” and that his phone call “critical.” The tax on mineral mining ultimately passed, as Mikhail Zygar described a year later in his book All the Kremlin’s Men.

Putin’s role is another constant theme in the film; at times, it seems like he’s more the star than Kudrin. According to Anatoly Chubais, Kudrin and Putin basically “carried Petersburg together for five years” in the early nineties. Gref says Russian economists didn’t sleep much during the 2008 financial crisis; promises were all Kudrin had to offer as he sought solutions, and all of the risks were taken by “Alexey and, of course, Mr. Putin.”

In the film, the Sberbank head also recalls how he and Kudrin came up with Russia’s 13-percent flat tax rate in the face of chronic tax deficits in the early 2000s — or, to be exact, how he came up with it, and how Kudrin, after some hesitation, eventually agreed. (Nabiullira nevertheless says Kudrin’s position was brave for a professional finance expert, whose job is to think of state revenue stability above all else.) The ministers showed their proposals to the president, who asked what would happen if the plan didn’t work. Gref replied that he would resign, and Kudrin said he would, too, to which Putin answered, “Get out of here. Your resignations won’t shield me from the fallout.” Gref says the ministers then “started putting themselves in the president’s shoes” and searching for ways to hedge the risks. It was only after this when Putin finally agreed to their tax reform plan.

Thanks to Putin, Kudrin’s main invention — the Stabilization Fund containing the windfall profits from Russian oil sales — took on existential importance for Russia. “This isn’t just a question of finances — it’s a question of national sovereignty,” said Deputy Finance Minister Tatyana Hesterenko, supposedly quoting Putin.

Hot and cold

While the documentary mentions Putin frequently, it features Dmitry Medvedev (the other president under whom Kudrin served) largely as a commentator. He claims not to regret saying nice things about Kudrin, who served as finance minister during the global economic crisis in 2008–2009 when Medvedev was in office.

Russia’s third president says Kudrin “showed himself to be a professional of the highest caliber” during the financial crisis. Kudrin “showed himself to be a professional of the highest caliber, who, in addition to having worked for a long time and being an experienced finance minister, was also a leader, a minister who worked with his colleagues in the most difficult part of the financial crisis to develop and implement solutions.”

Despite this flattery, it was Medvedev who demanded Kudrin’s resignation in the autumn of 2011. Evgeniya Pismennaya describes the events leading up to their conflict in her book:

Medvedev had had enough of Kudrin. The minister was constantly disagreeing with everyone, constantly lecturing people. Finally, at a meeting to discuss the president’s budget instructions, Medvedev couldn’t take it anymore: 

“What are you telling me for? This is a ministerial issue, managing parameters. Go to the ministers and deal with them.”

Kudrin was silent for a moment, then continued:

“Mr. Medvedev, you’re the president of Russia, and you should be aware of the main parameters and economic challenges related to the approval of this kind of budget.”

“Are you here to update me on the tasks I gave you? Then do it. Otherwise, I’m not interested.”

The immediate reason for Kudrin’s firing was his reluctance to increase military spending, which Medvedev had demanded. Eventually, when Medvedev and Putin announced their “tandemocracy,” Kudrin publicly stated that he “doesn’t see a place for himself” in Medvedev’s future ministerial cabinet. The statement, made while Kudrin was visiting the U.S., caused a scandal; according to Pismennaya, even Putin telephoned Kudrin. “I saw your performance,” said Putin. “I think it was wrong. You should not have said that.”

Soon afterward, Medvedev reprimanded the minister on live television, blaming him for his “irresponsible babbling” and demanding he either apologize or resign immediately. Kudrin said he needed to consult Putin.

“You can consult anybody you want,” said Medvedev, “but while I’m president, I make these decisions on my own.”

Medvedev suggests that Kudrin resign
RT Russia

Pismennaya later describes what happened when journalists left the room:

The meeting continued. As Kudrin kept sitting there, things became tense. Finally, Medvedev cracked:

“Mr. Kudrin, why aren’t you stepping out to call Putin?”

“I’ll call him later.”

“Go call him now. I’m waiting for your answer.”

“I’m the only Finance Ministry representative in this meeting, and the draft of the protocol decision is rough. I have some serious reservations about it.”

“Fine. Tell us your concerns, then go call him.”

Kudrin voiced his concerns, then packed his things and left the room in silence.

According to Pismennaya’s book, Putin later tried to convince Kudrin to head Russia’s Central Bank (an idea Medvedev supported, as well), but “Fortress’’ doesn’t mention any of this. The series does, however, include the former president’s praise of Kudrin: “He made a very important contribution to overcoming the 2008-2009 financial crisis.”

Seven years of drought

One thing that’s not in the book, despite being repeated several times in the film — including in the title — is the word “fortress.” “I don’t think any state has ever been able to engage in long-term thinking without building itself into a kind of fortress,” says Sberbank Deputy Chairman Bella Zlatkis at the start of the first episode, establishing a motif that continues throughout the series. In these market liberals’ view, their main achievement was not the return of Russia’s economy to the global economy, not the formation of a property-owning class, and not killing off communism for good, as Anatoly Chubais dreamed about, but the fact that they were ultimately able to make Russia relatively resistant to external market fluctuations. The 2008 financial crisis was their proof.

During that global recession, Kudrin used other metaphors, as well — in the early months, he called Russia an “island of stability.” As his colleagues claim in the film, for a long time, none of them doubted that the global crisis would bypass the Russian economy. “Alexey even believed Russia would have such a pause, would be able to attract so much investment, that we would become a harbor where everyone would send their money. Well, it would have been the first time in history, because money always gets pulled out from emerging markets first. But he disagreed: he thought somehow we’d be able to use this opportunity,” says Herman Gref, not without irony.

Eventually, the global financial crisis rocked Kudrin’s “island of stability,” requiring direct interventions, but he insists that his strategy was correct. He points out that he was named Euromoney’s Finance Minister of the Year in 2010 for the way he helped Russia weather the financial crisis. To illustrate, he invokes the biblical parable of the Egyptian pharaoh who had a dream:

He was standing by the Nile when out of the river there came up seven cows, sleek and fat, and they grazed among the reeds. After them, seven other cows, ugly and gaunt, came up out of the Nile and stood beside those on the riverbank. And the cows that were ugly and gaunt ate up the seven sleek, fat cows. 

Nobody was able to interpret the dream until Joseph explained that Egypt would experience seven years of good harvest and seven years of drought, and that they would need to prepare ahead of time in order to survive — in other words, they needed a stabilization fund. For some reason, though, Kudrin calls it a parable from the gospel, despite it being from the Old Testament (Genesis 41).

Kudrin’s colleagues confirm that the money invested in the stability fund helped support the Russian economy during the hardest part of the recession — and that it was important to earmark the money ahead of time. After all, according to Anton Siluanov (Russia’s current finance minister and a former deputy to Kudrin himself), “Lots of people proposing to spend money on good things always surround the Finance Ministry.” Chubais agrees:

So many people cursed his name. That madman! That idiot! That accountant — what’s he doing? We need to spend the money on infrastructure! On roads! But where would we go on the roads in 2008?

What’s most notable, however, especially in contrast to the years before Kudrin helmed the Finance Ministry, is how he managed all this without Western financial assistance. “You get really tired of living in constant financial dependence,” says Siluanov. This recurring message — that it was the liberals and their economic reforms (not Russia’s silovik hawks with their draconian laws) that freed Russia from external dependence — transforms Kazakov’s documentary from a nostalgic retrospective by old colleagues into a political statement all its own.

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Story by Dmitry Kartsev

Translation by Sam Breazeale

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