On August 17, 1998 the Russian Government and the Central Bank of Russia declared a default on government short-term bonds (in Russian abbreviation GKOs). The unprecedented criminal mechanism of GKOs was stopped. Its consequences turned to be very dramatic: the country’s financial system collapsed, the whole economy was essentially struck and the dangerous political crisis burst out. Thus, the events followed the August declaration revealed the great role of the GKO mechanism in the whole financial, economical and political system of the country: the system started falling to pieces after it had stopped. How can we explain such a role? What can we learn out of the GKOs life and death?

During the late 80’s – early 90’s the Soviet bureaucrats, their trusted agents and ‘’street’’ cunning impostors misappropriated a significant part of the national economy. The most perspicacious, crafty and successful ones "grabbed" federal budget and all the state finances by creating empowered (i.e. close to the state and extra privileged) banks. Namely these bankers, financial oligarchs together with newly established proprietors of "natural" monopolies became the owners of the Russian national economy.

The old connections remained and new connections were created between "the New Russians" who stole the state property and the bureaucrats who stole the governmental power. The staff exchange enriching both was being highly arranged. The private and the state's combined and got mixed up more and more, business and politics slid one into another. The property gave power and the power gave property, property and power synthesis generated unlimited freedom of action and opportunities unheard-of before. In 1996-98 the most efficient method of state money misappropriation became "crediting" of the state via the GKOs.

The GKO mechanism worked as follows: the state (namely, the Ministry of Finance actively supported by the Central Bank) borrowed large sums from commercial banks (not from every bank, only from "their own", empowered ones – that’s the matter!). In the allotted time (within one year) the state repaid the debt, naturally, with the due interest rates, unbelievably, sometimes fantastically high – up to and exceeding 100% annually! Everything happened under practically repressed inflation of those years!

Where on earth did the state take the money for settlement with the bankers? Did it take new loans? Not only, and not to such an extent. The state drew money from the budget and the main source of revenue was taxes. The process of pumping over the state money into bank safes repeated every week. Privileged banks had very high, guaranteed, and stable profits; bureaucratic financiers "took their cut" providing such a profitable and secure business. Due to those "loans" the country steadily grew poor and, finally, in the summer of 1998, the time came when the GKO debts could not be covered with the whole federal budget revenue.

Thus, the peculiarity of the said "credit" transaction lies in the fact that not only the creditors (bankers), but also the borrowers (i.e. state financiers) drew interests from it. And again, average taxpayers played the role of a money supplier. This third party, the victim that suspected nothing, was involved in the "game" against it will and here lies the significant difference between the GKO system and the "financial pyramids" of the early nineties.

The shady, criminal side of the GKOs can be confirmed by the following indirect evidences: the state that delays salaries to budget-sponsored employees for months and years, the state that constantly violates commitments, the state that considers lies at every step to be a code of conduct – such a state during five-year GKO history had never (until August 17, 1998) delayed its payments to banks! Why does the state treasury always lack money for teachers, employees of state-owned enterprises, military men and many others, but it was always ready to pay to bankers and accurately on term? Interesting, isn’t it?

One more evidence that everything is not all right with the GKO system bases on the fact that the purchase of these bonds was allowed not for every person wishing to lend deposit to the state but only for selected and specially authorized banks and their trustees. At that, natural persons (with the exception of "the new Russians") for a long time haven’t had any practical opportunity of buying the GKOs, due to the very high (100,000 Rubles) minimum admissible loan amount. No sooner than July 10, 1998, when the default was already been predetermined, this amount was reduced to 10,000 Rubles (approximately US$1,500), thus the right to lend deposit (now irrevocable one) to the sinking state was given to the "middle class". One may ask why the Ministry of Finance being constantly in extreme need of money during these five years borrowed only from selected creditors and turned up nose at the others? After all, it was possible not only to increase the deposit amounts, but also (chiefly!) to decrease the wasting interest rate by attracting thousands of small "unorganized" depositors due to the sharply grown competition between creditors! Why didn’t the Ministry of Finance seize such an evident opportunity? Indeed, why?

Having squeezed everything from the GKO mechanism, the oligarchic bankers didn’t miss the opportunity to make use of its death in order to loot all their clients simultaneously. Referring to the fact that the government ceased paying the GKO debts, the leading banks stopped all payments. Corporate clients (small banks, middle and small-scale enterprises, insurance companies, pension funds) suffered heavy losses, some of them went broken. As for the depositors (natural persons), the mafia-state took them under "patronage" and allowed them to transfer their "hung in the air" deposits (of course, with huge losses!) to the half state-owned Sberbank. And what about the bankers? The state denuded them boldly of their clients! After protesting inertly for a couple of days, the powerful oligarchs agreed hand in hand with such an "expropriation". For what reason?

Perhaps, we should feel sorry for the bankers? You see, as a result of the "sudden" freezing of the GKOs by the "treacherous" state they have lost enormous amount of money! Yet, there’s no need to worry about them: the bankers already returned "their own" money long time ago and even with interest (by looting clients, by obtaining various kinds of assistance from the state and so on). I’d like to ask the reader who still regards the superbanks as the injured party: what would our bankers do with the bureaucrats who actually took their billions of dollars? It is a rhetorical question for a person acquainted with life in Russia in the 1990s. Nevertheless, nothing terrible happened this time. Being usually severe and unbending in the fight for their financial interests, in this case the almighty oligarchs limited their protests only by squawks and wails. After bemoaning their fate for a week or two, the bankers got calm and forgave everything to "bad" bureaucrats. The question arises, why?

In the summer of 1998 the GKO payments wore the country out. One would think, the stopping of these wasting payments must have had very favorable influence on the economical health of Russia. In our case, quite the opposite took place.

It turned out that the Russian national economy was kept at the very least on the failure-free performance of the GKO mechanism; the stopping of this rapacious and voracious mechanism turned out to be much more suicidal for this economy than its operation. But if the liquidation of the GKOs leads to the economy breakdown, therefore, this "loan" instrument is something vitally important, skeletal and cross-linking in the economic system. But, as we saw, the essence of the "instrument" is criminal! We have to admit that plundering, stealing and fraud which present the core of the GKO operations, are the most important attributes and the backbone components of modern Russian economy, the factors that penetrated integrally into its flesh and blood, the factors without which it can’t exist. The economy of today’s Russia is neither market, nor planned-distributing; it’s criminal, fraudulent, predatory and thievish! That’s why it’s not very important what kind of policy – "market" or "non-market" – the government follows, much more essential question at present is whether this policy anti-criminal and if the answer is positive – to what extent.

But the tragedy of the situation is that the Russian economy is not merely criminalized, it’s completely criminal, criminal by its nature! Figuratively speaking, this is not a rusty construction, this is the one made of rust, rust in itself! In such an economy to strike blows on the crime means to strike blows on the economy itself, on its skeleton, on the main principles of its existence. And that happened in August of 1998: the Russian economy almost broke up after the elimination of its criminal core, the GKO system. Therefore, under such circumstances the criminal components of the economy shouldn’t be just eliminated, they should be replaced immediately by the market ones (or non-market, in any case not criminal). At that, it is necessary to eliminate not specific possessing criminals, but criminal and criminogenic institutes and mechanisms – empowered banks, private-governmental joint stock companies, budgetary clearings of payments, multistage trade and financial intermediation, barter and so on.

The question arises: if the decriminalization of the economy is not only unbelievably difficult, but also extremely hazardous (the economy can fall into pieces at all because of incorrect or careless actions) then, perhaps, we should leave it to the mercy of fate? After all, the criminal economy is better than none!? Alas, it’s better. However, the tragedy of the situation is aggravated by the fact that such an economy is very short-lived in its nature, at that its short life is inevitably accompanied with periodical crises, shocks and collapses (remember, for example, about "the black Tuesday" of 1994). Because a criminal economics is not so much productive, as parasitically consuming and exterminatory one. Such a self-destructive economy can exist (of course, until the time comes!) only under periodical changing of basic criminal techniques and methods. And when a basic criminal technology becomes fruitless (due to depletion of country’s resources which can be stolen and misappropriated with the help of it), the economy built on it falls inevitably into a deep crisis. It was just the case in August of 1998: as soon as the plundering of budget funds by the GKO operations (the major and most effective criminal and economical measure of late years!) was completed, the Russian economy started reeling, splitting and breaking up.

The hectic search of new criminal technologies has been already continuing for a year and a half. The bankruptcy of capable industrial enterprises seems to play the role of the basic criminal mechanism in "post-August" Russia. However, this "business" falls short significantly of the former GKO "business" as to its scope and reliability, regularity and organization. Thus, fortunately, the adequate substitute for the GKO mechanism has not been found as yet. This very fact comes first to explain the relative stabilization of the Russian economy in 1999: having hardly outlived a shock connected with the GKO abolition, in the absence of "new GKOs" the Russian economy came a little bit alive.

The hectic search of new criminal technologies is freely going on. However, both the predators and the victims have to know: the potential set of such technologies, vast and boundless 8 years ago, is extremely limited now because the resources of once rich country are practically exhausted.

These are the lessons of the GKOs quiet life and notorious death.

P.S. On February 23, 2000 the Ministry of Finance distributed (i.e. sold to the banks) the first package of the "new GKOs"...