The Nation

Moscow

Just before Christmas in 1997, as a tumultuous stock-market crisis ravaged  emerging markets in every corner of the globe, readers of the Wall Street  Journal were treated to some good news: Russia was going to emerge from the  mess unscathed. While conceding that "few debt markets outside Southeast Asia  were hit harder by recent financial turmoil than Russia's," the Journal's  Moscow bureau chief, Steve Liesman, added quickly that "many analysts believe  an equally strong rebound may be in the offing." Moreover, Liesman wrote,  investors were rapidly coming to the realization that "Russia's problems are  far different and, for the moment, less dire than those that undermined Asian  economies." The December 16 piece was headlined, "Russian Debt Markets Due  for Rebound."

A few weeks later, Liesman and the Journal used even stronger language to  trumpet Russia's economic merits. They chided investors who were too busy  "fretting over Asia's financial crisis" to notice what they called "one of  the decade's major economic events: the end of Russia's seven-year recession."

The Journal's prediction was more than a little precipitate. Instead of  getting better, things in Russia got worse. A lot worse. Nine months after  Liesman declared that Russia's debt market was due for a rebound, and just  over seven months after proclaiming the end of the Russian recession, the  Journal--like most US newspapers--found itself having to explain the  near-total collapse of Russia's economy and capital markets.

What is most astonishing is not how badly Liesman and the Journal misreported  one of the most tragic economic stories of the decade as it was happening.  The amazing thing is that they won a Pulitzer Prize for their reporting of  the Russian crisis after the country had gone down in flames. Liesman, who  left the Moscow bureau in April of 1998 to return to New York, was called  back to Moscow after the crisis to help write a series of Journal pieces on  how the Russian financial collapse happened. These articles completely  contradicted the body of work he had left behind, leaving the impression that  the collapse had been inevitable all along.

While it's true that throughout the mid-nineties nearly the entire Western  press corps had painted a similar picture of allegedly successful, if bumpy,  market reform in Russia, the Wall Street Journal's version was even more  deluded, and more inappropriately enthusiastic, than the competition's.  Furthermore, few if any of those other outlets, with the possible exception  of the New York Times, have as much influence internationally as the Journal.  And none of those other reporters won the Pulitzer Prize. To win that, the  Journal ought to have been ahead of the pack throughout; as it was, the  paper's coverage only stood out as the most spectacular wreck in a huge  pileup.

Liesman's Russia coverage was a case study in the kind of narrow colonialism  and provincialism that is increasingly pervasive in American foreign news  reportage. Until the crisis struck, Western reporters based in Moscow focused  almost exclusively on the Russia story in terms of its relevance to Western  businessmen--and as long as the stock market was doing well, and companies  like British Petroleum were still proudly announcing mergers with Russian  partners, much of the corruption that eventually sank the Russian economy was  ignored. As a result, an event like the recent Bank of New York debacle  actually came as something of a surprise to Americans. But for ordinary  working Russians, a great many of whom have been watching their bosses send  company money offshore for years while their own salaries go unpaid, the only  surprise in the New York money-laundering story was that it didn't come out  sooner. And one reason it didn't is that the Western press, particularly  pro-"reform" cheerleaders like the Journal, was plainly uninterested, until  it was far too late, in making an effort to see the corruption that was a  daily reality for the majority of Russians.

In fact, until the crisis forced them to change their tune, Western reporters  like Liesman seemed to distrust reports of widespread public despair over the  Yeltsin regime's criminal policies, preferring instead to rely upon the stock  market, the pronouncements of the IMF and the results of Russian  state-produced macroeconomic reports to tell them how the Russian economy was  doing. As journalists Matt Bivens and Jonas Bernstein wrote in an article in  the academic journal Demokratizatsia, which criticized Western press  performance (including that of the Wall Street Journal) in post-Communist  Russia: "Sadly, there is another dynamic at work here, an element of disdain  for the Russians as a people.... [Many] Westerners have sympathy for the idea  that following centuries of oppression, the Russians 'aren't ready' to be  trusted with complete democracy. Perhaps, then, it is better to let former  Vice Premier Anatoly Chubais and his Harvard-trained whiz kids manipulate  matters--always, of course, 'in the larger interest.'"

Liesman, 36, a bombastic, balding New Yorker whose amateur blues band played  a few coolly received gigs in Moscow clubs in his early years here, is still  well known in the Moscow press corps as a sort of caricature of a typical  Moscow-based US correspondent--a loud presence at press conferences and a  knee-jerk anti-Communist. Despite having lived in Russia since 1992, when he  came to work for the English-language Moscow Times, Liesman was still using a  translator in 1998, the year he left.

"I wasn't the only guy who was [working with a translator]," he said. "A lot  of guys were doing that." When reminded that he was the only one of those  "guys" who had won the Pulitzer Prize, he conceded, "Well, that's a point."

Like many of the more linguistically challenged members of the foreign press  corps in Moscow, Liesman fell into the classic trap of making one small group  of English-speaking Russian politicians his most trusted source of  information. That clique--including privatization czar Chubais, early Prime  Minister Yegor Gaidar and allies of theirs like onetime property chief Maxim  Boycko--was often referred to by Russia observers as the "St. Petersburg  Mafia" (most of the group came from the northern capital). This group sold  itself to the Western press as the vanguard of the anti-Communist,  pro-Western movement and nudged reporters like Liesman into portraying any  criticism of their policies as aid to the Communist movement.

Liesman's unwillingness to report any negative news associated with the St.  Petersburg Mafia first became glaringly obvious in early 1996, when he called  privatization "the most successful and important of Russia's reforms." Part  of the privatization effort that Liesman praised, the notorious  "loans-for-shares" auctions, had just created a national scandal due to their  overt criminality; it had forced loans-for-shares architect Chubais out of  government. In these auctions of huge stakes in key Russian enterprises,  Kremlin insiders decided the winners in advance, often helping out by padding  their bids with government funds. These auctions instantly created a  super-rich clique of monopolist "robber barons"--many of whom were  much-vilified names in the US press this past summer, when they began  appearing in connection with investigations into the Bank of New York scandal.

The criminality of these auctions was well detailed in the Russian- and  English-language press: Izvestia, for instance, reported that $50 million in  Ministry of Finance funds had been transferred to Bank Menatep before the  latter won a huge stake in the oil company Yukos, and more than one paper  noted the curious anomaly of two banks (Stolichny Bank and Menatep)  guaranteeing each other's bids in a "competitive" auction for a stake in the  oil company Sibneft. The winning bid in that auction was just $100.3 million,  despite the fact that the company, which at the time produced more than 22  million tons of crude per year, was clearly worth a lot more. Most observers  at the time believed that the sweeping victory by the Communists in the 1995  parliamentary elections was at least partly fueled by public disgust over  these bogus auctions. And every sane observer recognized that the auctions  represented a profound step away from the Western capitalist model. Even the  cautiously neoliberal Moscow Times criticized the auctions in a December 30,  1995, editorial: "As more than one commentator has said, this isn't  capitalism as the country ought to know it.... While it goes on, and there is  no reason to think that it will stop, economic growth will be held back, and  cronyism and cartels will prevent meritocracy and open markets."

Liesman didn't see it that way. His Journal coverage ignored the auctions'  reported improprieties and dismissed their critics as Communists and  political malcontents. In a February 7, 1996, article, for instance, he  compared the criminal investigations into loans-for-shares to "show trials":  "The [investigations] are at least partly political.... Some in Moscow's  financial circles even anticipate show trials that would sacrifice a few  privatization deals to mollify the opposition and save the rest of the  program." In an interview for this article, Liesman said he believed, and  still believes, that loans-for-shares was, relatively speaking, a success--or  at least preferable to the alternatives. "It's in your opinion that  [loans-for-shares] wasn't successful," he said. "To me, if you ask me, what  was the alternative? Keeping it in state hands?" Liesman added, "Do I stand  accused of being on the Chubais bandwagon? If so, I plead guilty. Just like  the United States government, and just like every other expert we spoke to."

Unfortunately, none of the "experts" Liesman spoke to were ever very  interested in advertising Russia's problems to the Western investors who read  his paper. Ultimately, this was the key to the Journal's failure. While  Western businessmen on the ground in Moscow saw the disaster of the Russian  state in action--evident in their mass flight from Russia's capital markets  beginning in late 1997--Journal readers abroad were taken completely by  surprise when catastrophe struck. As late as June 1998, when Russia's capital  markets teetered on the edge of collapse and worker protests over nonpayment  of wages paralyzed rail travel across the country, the Journal was still  dismissing Russia's troubles as fallout from a few logistical glitches. In a  June 5 article, Liesman argued that the crisis had its roots at least  partially in a scheduling blunder by one of then-Prime Minister Sergei  Kiriyenko's underlings:

Moscow--In the story of how Russia's markets collapsed in May, give at least  a couple of paragraphs to a simple mistake by a provincial government aide.
      It happened that Lawrence Summers...requested a meeting with Prime  Minister Sergei Kiriyenko. But an aide to the youthful new prime  minister...knew only that this Mr. Summers was a deputy secretary of the  treasury--a title unworthy of an audience with a Russian prime minister.       Word leaked out that the two had failed to meet.... Over the next two  weeks, a bad situation worsened, as ruble-holders rushed to convert to  dollars, stock prices plunged, and a near panic brought Russia to the brink. At the time this article was written, Russia was experiencing major unrest.  The last remaining investors were pulling out en masse, markets were  collapsing and the debt bubble had grown so large that no new IMF loan could  possibly save it. But Liesman, apparently eager to reassure his readers,  attributed May's financial tremors mainly to PR gaffes--as well as the Asian  financial crisis:

Until the most recent troubles in Asia--riots in Indonesia, more evidence of  Japan's deep ennui, a nuclear race on the Indian subcontinent--Russia  appeared to have escaped the ravages of the Asian monetary maelstrom. Its  notoriously poor tax collection was improving. Economic data showed growth  for the first time in seven years. Credit Suisse First Boston declared the  country a buy. Boris Jordan, an American who has become one of the biggest  players in Russia's stock market, went on vacation to Disney World. Two things bear mentioning here. One is that before the crash, pro-reform  journalists like Liesman often justified placing a positive spin on the  Russian economy by noting that their sources in places like Credit Suisse  were constantly pumping up Russia as a hot market. The brokers, the thinking  goes, were the experts--so how could a reporter be remiss by trusting them?  Answer: very easily. Any good business reporter knows that few stock analysts  or brokers in emerging markets will go on the record as saying anything  negative about their host country's economies--because if they do, no one  will buy into its market. Asking a Credit Suisse trader in Moscow to be  straight about the Russian market is like asking a Ford dealer to compare a  Taurus with a Lexus honestly. Quoting analysts is fine to get the bright side  of a story, but a responsible reporter looks for hard economic data for  balance--and this is what was consistently missing from the Journal's  coverage.

The second fact worth mentioning is that the Russian State Statistics  Committee was notoriously unreliable. In fact, its chief, Yuri Yurkov, was  fired for fudging statistics shortly after Liesman's June article appeared,  news that went largely unreported in the Western press. In contrast, when the  much-vilified anti-IMF president of Belarus, Alexander Lukashenko, announced  a 10 percent rise in GDP for 1997, the news was greeted with widespread  skepticism in the West. A Moscow Times story, for instance, was headlined  "Belarus Growth a Question of Statistics" and speculated that Lukashenko  might be "cooking the books." Russia got no such treatment in the reform era.  The most revealing passage in the June article by Liesman was the line about  Disney World. Thousands of people were sitting on train tracks to beg for  their wages, and Liesman was writing about one rich American's plans to  travel to Disney World.

Then again, lack of empathy for the plight of ordinary Russians was a  consistent feature not only of Liesman's coverage but of US policy toward  Russia in general. Like the IMF and the World Bank, both of which felt that  Russia's need to pay their high-priced consultants was greater than its need  to pay many of its "economically unnecessary" workers, Liesman revealed a  concern for wage-earning Russians that extended only as far as their  perceived utility in the service of global capitalism. When asked why he  hadn't covered the nonpayment crisis, he replied: "Yeah, but nonpayment for  what kind of labor?"

Mining coal?

"Coal that was needed, or not needed?" he snapped.

In that same June 5 article, Liesman also suggested that Russia might have  been better off if it had been more corrupt, not less. "Another policy change  also hurt," he wrote. "For years, the government had used commercial banks to  pay its bills. Last year, it moved to a US-style treasury system, with  branches of its own. The change saved money, reduced corruption and made  payments more timely. But an unforeseen result was a fall in the cash moving  through banks--money that these banks once used to play the government bond market.

"So when the crunch hit, the Russian banks couldn't help."

Liesman wasn't the only major-market bureau chief to blow the Russia story.  The Washington Post and the Los Angeles Times both described Chubais as "lightning rod" for unfair criticism when he was fired, downplaying or ignoring the many scandals he'd been linked to. Business Week wrote a glowing profile of banker Vladimir Potanin after he had been linked to an apparent  bribe of officials in charge of a major auction Potanin had just won. In fact, most of the Western press, like the US government, got the Russia story wrong before the crash; as Liesman said, most of them really were on the Chubais/reform bandwagon right up until the August crash, when the position became untenable. In a 1995 article for the New York Times, John Lloyd,  onetime Moscow bureau chief of London's Financial Times, dismissed as "facile pessimism" claims that Russia was sinking into a quagmire. Like Liesman, he would eventually change his tune, writing a much-ballyhooed eulogy of the Russian reform effort in the New York Times Magazine this past summer that railed theatrically against the corruption in the Yeltsin regime. In that article Lloyd even denounced the loans-for-shares auctions as acts of "colossal criminality"--language far stronger than he had ever used when privatization was actually taking place.

Liesman was replaced by Andrew Higgins in July 1998, but he returned to Moscow in August to participate in the writing of a series of articles explaining how the crisis had unfolded. Apparently realizing he was on to a Pulitzer-caliber story, Liesman backed off every position he had taken in the previous two years and enthusiastically volunteered the new conventional wisdom: that the fundamentals for an Asia-plus meltdown had been there allalong. In a prizewinning September 23 article co-written with Higgins, Liesman recounted grotesque anecdotes illustrating how Russia's crony  capitalism was one of the fundamental reasons behind the country's collapse,concluding: "All the while, the government was going broke. It couldn't collect the taxes it needed to pay its bills. So it built a rickety structure of domestic and foreign debt, creating the pyramid that collapsed in August and pushed Russia into default."

What about loans-for-shares, which Liesman had lumped in with "the most successful and important of Russia's reforms"? At the time, he had dismissed critics of the auctions as Communists. But in preparation for the Pulitzer ball, Liesman and Higgins sneered that only a fool could have missed the overt criminality of the auctions:

Desperate for cash, the government mortgaged some of its most lucrative assets for a fraction of their real value in return for loans from a handful of bankers. Meeting in secret, they carved up the spoils. Government bureaucrats colluded in the so-called loans-for-shares deals, allowing ownership of the stock-in-trust to be awarded at rigged auctions. There wasn't even a semblance of propriety. At a news conference in 1996, a Menatep executive could hardly contain his laughter when he claimed, implausibly, that he didn't know who owned the subsidiary that had just bought Yukos, Russia's second-biggest oil company. Russian journalists, served cognac by the bank's staff, guffawed in disbelief. Menatep had run the auction and the bank, it would later disclose, controlled the firm that entered the winning bid. None of the above, or even a hint of it, was in Liesman's coverage of loans-for-shares when the story first happened. And none of it was new news.

Pulitzer candidates, like defendants in murder trials, are ostensibly judged by what they did, not by who they are--character and past behavior theoretically being irrelevant to the jury's decision. In this case, Liesman, Higgins and the four other Journal staffers who won were judged by what they did in ten post-crisis articles, written between June and December of 1998.

But there are times when who a journalist is and what he does coincide. The record shows that Liesman's bureau was little more than a PR conduit for a corrupt regime, consistently averting its eyes from the ugly truth. It cleaned up its act just in time to win the most coveted award in American journalism. The Pulitzer committee, as a body composed of journalism experts,