Strongman, The

prevent him from leaving the government benches and reaching the podium. Some of them tried to grab him physically. The din was so loud that the Speaker could not make himself heard, so he called Gref on his phone and told him just to present his bill from where he was. ‘No one can hear you anyway,’ he said, ‘but you’ve got to do it, otherwise we can’t hold the vote.’
    So Gref made his speech, as quickly as he could, while communist deputies hammered their fists on their desks and drowned him out with their chants. The vote was held, the law was passed ... and the chamber instantly turned into a battlefield. Opposing deputies punched, kicked and head-butted each other.
    ‘It was a historic moment,’ Gref reminisced later with a smile. ‘That’s how we won the right to own land in Russia.’
    Hands off Gazprom
    The initial effect of the package of reforms was impressive. Russians did start to pay their taxes. Inflation fell from 20 per cent in 2000 to 9 per cent in 2006. The economy grew steadily at around 6–7 per cent a year. With the help of rising world prices for oil and gas (Russia’s principal exports) the government did not just balance its books but went into surplus. It began paying off its huge foreign debt, which amounted to 130 per cent of GDP in 1998, reducing it by 2006 to just 18 per cent.
    As petrodollars poured into the exchequer, the government faced a dilemma. There was those, including Gref, the economy minister, who wanted to spend the windfall on infrastructure: roads, railways, education and the healthcare system. Kudrin, the finance minister, on the other hand, feared that this could fuel inflation. He proposed instead the creation of a Stabilisation Fund, which would soak up surplus liquidity and build up a substantial cushion to protect the country if the price of oil should slump in the future. Most ministers wanted money straightaway for their industries. Regional governors complained to Putin that Kudrin was depriving the economy of cash. ‘We had hot discussions about this,’ said Gref. In the end both were satisfied. An Investment Fund was set up, which would plough up to $3 billion into infrastructure each year. ‘It was a public–private partnership,’ said Gref. ‘If there was private money, the state financed it. It allowed big factories, power stations and so on to be built with private money.’
    But the big winner was Kudrin with his Stabilisation Fund, which reached 522 billion roubles ($18.5 billion) by the beginning of 2005, allowing Russia’s debts to the IMF ($3.3 billion) to be paid back in full. Oil revenues continued to pour in. By August 2006 Russia had also paid back its entire Soviet-era debt of almost $40 billion to the Paris Club of foreign government creditors – saving $7.7 billion in servicing costs. Even with these massive outlays, the Stabilisation Fund continued to accumulate as oil prices soared, giving Russia a healthy cushion to fall back on when prices slumped during the world economic crisis of 2008.
    Putin’s prime minister for most of his first presidential term was Mikhail Kasyanov, a charming, English-speaking free-marketeer with a booming voice, who oversaw the implementation of the Gref Plan. He has since become one of Putin’s fiercest critics and a leader of the opposition. In 2008 he tried to run for president, but the Kremlin machine put paid to his plans by discovering alleged falsifications in the two million signatures collected to back his candidature. Back in the days of the ‘Putin spring’, however, he and the president saw eye to eye on almost everything. Even today he admits that Putin was at that time fully signed up to liberal reforms: ‘It seemed to me that Vladimir Putin and I were allies, building – maybe not without mistakes – a democratic state with a market economy.’ 5
    Only in one major endeavour did the reformers fail – and it proved to be highly significant. Asked whether Putin interfered much in the day-to-day work of the government, Kasyanov replied: ‘In 90 per cent of cases he didn’t interfere. The other 10 per cent concerned Gazprom and almost everything connected with it.’ 6
    Gazprom was the country’s largest company, and the biggest natural gas producer in the world. Created from the former Soviet Ministry of Gas, it was privatised under Yeltsin, but the state retained 40 per cent of the shares. It was in a parlous state, a hotbed of corruption, asset-stripping and