Moscow, December 25, 1991

There are, however, no shortages in the handful of shops reserved for holders of foreign currency. They are crammed with everything one might find in Western supermarkets but are patronized almost exclusively by expatriates, the real elite in the dying Soviet empire. These are the diplomats, business people, and correspondents who live in specially reserved apartment complexes, and whose children wake up this Christmas morning to find stockings crammed with confectionery and toys. They have purchased turkeys, plum pudding, and other savories for Christmas dinner from stores such as Stockmann’s of Finland, tucked away in a private section of GUM on Red Square. The nine million Muscovites are effectively barred from these hard-currency emporiums, as the ruble is not convertible. The stores discreetly conceal their wares—grapefruits, bananas, flour in several varieties, spaghetti, French wines—behind paint-coated windows, so as not to draw attention to this consumer apartheid, or to agitate the Muscovites hurrying past with empty string bags.

The mayor demanded a week ago that Yeltsin give him special powers to overrule the city soviet so he can take executive action to prevent paralysis. Otherwise he will resign. The Russian president, unwilling to cede any of his powers to rule by decree, has refused. Popov has not yet quit and has sent Luzhkov to break the stalemate. As deputy mayor and city administrator, Luzhkov is the real chief executive of Moscow. The stocky former engineer facilitated the opening of the first private businesses, the cooperatives, in the city under Gorbachev’s reforms, and in August he helped rally ordinary city people against the coup. He tries to persuade Yeltsin that the mayor’s office must be free to take its own initiatives to prevent chaos. Moscow needs control over fuel supplies and power and gas networks, as well as the independent management of food stocks.

After more than an hour of sometimes heated negotiations, Yeltsin signs a series of ten decrees giving Popov more power. Luzhkov returns with his group to the city hall. Popov decides to stay on. The mayor notes that the president has given an assurance that the city will receive “comprehensive assistance” to implement the transition. More importantly, Popov has consolidated mayoral rule. Pravda announces the news with the headline “The Resignation Farce Is Over” and accuses Popov of acting as a tool of the democrats and entrepreneurs who want to destroy the elected council.

The shock therapy Yeltsin is applying to the ailing Russian economy was mooted more than a year earlier when Mikhail Gorbachev flirted with, then abandoned, a five-hundred-day plan to convert the floundering command system to a market economy. One of its authors, Grigory Yavlinsky, worked on the reform program with the help of Harvard experts Graham Allison and Robert Blackwill. They also sought advice from Harvard economics professor Jeffrey Sachs, who assisted the Polish government with its shock therapy.⁴ Sach’s attitude, according to Chernyaev, was “If you don’t become like us, you’ll get no dollars.” Gorbachev vetoed the plan, and no dollars were forthcoming.

Having persuaded the Russian parliament to give him special powers, Yeltsin is ready to make the leap to capitalism. He has given the task to a small and radical group of young economists, led by Gaidar, a devotee of the Chicago school of monetarist economics.

Short, chubby, intellectually gifted, and nicknamed Guboshlyop because of the way his lips flap when he talks, the thirty-five-year-old Gaidar is to be found on the evening of December 25, 1991, in the long, whitewashed Hall of Meetings, where a drugged and distressed Yeltsin was brought from his hospital bed four years ago to be shamed by party leader Mikhail Gorbachev for daring to challenge his leadership and privileges. He is working there with Jean Foglizzo, who arrived in Moscow shortly before as representative of the International Monetary Fund.

“I had a lot to do,” Gaidar recalled. “The state of the economy was catastrophic.” Imports of sugar, tea, cereals, and soap from the other republics have fallen by more than three-quarters. Machine building and construction has come to a standstill. For some months the Soviet government has been unable to gather taxes. The USSR has exhausted its foreign currency reserves and has debts of $30 billion. “In other words,” said Gaidar, “the Soviet Union was bankrupt.” His problem is that while the old system is broken, there is as yet nothing to replace it.⁵