September 5, 1998   

This Date's Issues: 2349••   •

Johnson's Russia List
#2349
5 September 1998
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Yeltsin, Parliament Seek Compromise.
2. Reuters: Acting Russian PM says no alternative to his plan.
3. Moscow Times: Jeanne Whalen and Matt Bivens, 'Economic Dictatorship' 
Talk Is a Pose.
4. Moscow Times: Valeria Korchagina, Economic Policy Baffles Muscovites.
5. New York Times editorial: Russia's Desperate Economic Plan.
6. Jacob Kipp: Multiple Militaries and Russia's Political-Economic
Meltdown.
7. Anthony Sager: Constitutional options for President; succession.
8. John Danzer: Western Press Still Doesn't Get It.
9. In These Times: Fred Weir, FREE FALL.
10. Reuters: Russian economics chief spells out plan. (Boris Fyodorov)]

*******

#1
Yeltsin, Parliament Seek Compromise
September 5, 1998
By LESLIE SHEPHERD

MOSCOW (AP) -- Opposition leaders said Saturday they had as many as nine
alternatives to Boris Yeltsin's choice for prime minister, including several
top Soviet-era bureaucrats. 

Their remarks kicked off a second weekend of behind-the-scenes negotiations to
end a protracted political and financial crisis that has begun to spur anxiety
among ordinary Russians worried about further instability. 

The Communist-dominated parliament unexpectedly postponed hearings Friday on
whether to confirm the president's pick for prime minister, Viktor
Chernomyrdin. 

Party leaders agreed to hold face-to-face talks with Yeltsin on Monday before
a rescheduled debate on Chernomyrdin later in the day. Yeltsin was spending
the weekend at his country residence, his press service said. 

``I don't expect anything good from Mr. Yeltsin'' on Monday, Zyuganov told The
Associated Press on Saturday. 

``We will state our opinion of the real situation. Because he rarely meets
(with lawmakers) he doesn't know the situation. He is not governing,''
Zyuganov added. 

Zyuganov said he and his hard-line allies have nine possible alternatives to
Chernomyrdin, whom they blame for creating Russia's current predicament during
the five years he was prime minister before being fired in March. 

``The Yeltsin-Chernomyrdin couple ... are distrusted by 9 out of 10 people
now,'' Zyuganov said. ``By the end of September they will be distrusted by 98
out of 100 people. They have no assets, no resources, no brains, no will ...
They have nothing.'' 

Yeltsin brought Chernomyrdin back to head the government on Aug. 23, saying he
needed an experienced heavyweight to deal with the country's mounting
problems. 

He has been locked in a standoff with parliament since, while the economy
deteriorates daily. 

On Friday, the ruble dropped another 21 percent and sharp price rises spurred
consumer anxiety. 

``I started to get worried today for the first time,'' said one shopper,
retired theater director Nina Vasilyeva. ``The idea of stocking up hadn't even
come into my head before. But groceries are now twice as expensive. I'm buying
things I don't need because everybody's bought the rest.'' 

The official ruble rate fell Friday to 16.99 to the dollar, or 5.8 cents, down
from 13.46 to the dollar, or 7.4 cents, on Thursday. The street level was even
lower. 

The leader of the Communist-allied Agrarian Party said the opposition
candidates include Vladimir Gerashchenko, whose favorite response to economic
problems as Central Bank chairman in the Soviet era was to print more money,
and Yuri Maslyukov, former head of the Soviet state planning agency. 

Agrarian leader Nikolai Kharitonov said they would also suggest Moscow Mayor
Yuri Luzhkov; Yegor Stroyev, speaker of the Federation Council, the upper
house of parliament; and Gennady Kulik, deputy chairman of the parliamentary
budget committee, the Interfax news agency reported. 

Interfax said the opposition considered proposing Communist leader Zyuganov as
well. 

``I decided not to name Zyuganov because this name gives the president
heartburn,'' Kharitonov said. 

Yeltsin has said he will nominate no one other than Chernomyrdin. 

Under the constitution, Yeltsin has three chances to propose a prime
ministerial candidate, either the same person or different people. If the Duma
votes no three times, the president can disband the legislature and call new
elections. 

Ultranationalist Vladimir Zhirinovsky predicted Saturday that Chernomyrdin
would be confirmed if Monday's vote is a secret one, rather than an open vote
where every lawmaker's position can be seen. The Communists have called for an
open vote, apparently hoping to keep their members from secretly supporting
Chernomyrdin to avoid early elections that they could lose. 

Chernomyrdin's position was strengthened Friday when the Federation Council
passed a non-binding motion 91-17 expressing confidence in him. 

The vote was only symbolic, but it may increase pressure on the Duma to find a
compromise. The regional governors who make up the Council have huge power and
the vote signaled they would back Yeltsin in a showdown. 

``Viktor Chernomyrdin, if approved for the premiership, will be able to take
real steps for taking the country out of the crisis in a short time,'' said
Alexander Lebed, the former national security adviser recently elected
governor of the huge Krasnoyarsk region of Siberia. 

******

#2
Acting Russian PM says no alternative to his plan

MOSCOW, Sept 5 (Reuters) - Acting Prime Minister Viktor Chernomyrdin said on
Saturday it would need rigid discipline to implement his proposals to drag
Russia out of economic crisis but there was no alternative to his
``revolutionary'' plans. 

Chernomyrdin told Russian television a strong government was needed as soon as
possible to tackle the country's problems and people should study his ideas.
He said: ``We have come to the point where there is essentially no other way
out.'' 

month and nominated Chernomyrdin to be prime minister. The opposition-
dominated State Duma lower house of parliament has already rejected
Chernomyrdin once and is scheduled to vote for a second time on Monday after
round-table talks with Yeltsin. 

On Friday, Chernomyrdin outlined a series of tough measures he would introduce
if confirmed as premier, saying ``economic dictatorship'' would be needed to
save the country as well as a low flat-rate tax and a rouble tied to reserves.

``People should at least read into the strategy of the programme,'' he said on
Saturday. ``It is revolutionary.'' 

``It is a programme which calls for the most rigid discipline, responsibility.
But it is also a programme which will remove many problems, and quickly,'' he
said. ``We need a strong team, immediately, a government to carry it all
out.'' 

*******

#3
Moscow Times
September 5, 1998 
'Economic Dictatorship' Talk Is a Pose 
By Jeanne Whalen and Matt Bivens
Staff Writers

In pledging to establish an "economic dictatorship" in Russia this 
winter, Viktor Chernomyrdin was trying to favorably impress a parliament 
and a nation that is yearning for drastic steps to save the economy. 

He was also careful to say such a dictatorship would be aimed at 
ensuring that Russia remained a free-market economy. But in fact his 
program remains contradictory and unclear, and his tough talk of 
adopting a dictator's harshness toward bankrupt industries and major tax 
debtors could well be just that -- talk. 

"What Chernomyrdin said was largely a political speech ... a mixture of 
measures, without making it clear what the economic priorities are," 
said Sadie Wighton, a senior analyst at Regent European Securities. 

Using characteristically cryptic language, Chernomyrdin said the Central 
Bank would print more rubles to pay workers and, presumably, to float 
loans to ailing banks. 

Well aware that Russians fear inflation after being scorched by it in 
1992 and 1993, he hastened to add that any ruble emissions would be 
"limited." 

But it remains an open question whether a Chernomyrdin government would 
have the strength to say no to banks, industrial empires and 
rank-and-file workers and stop printing rubles once it had started. 

With a laundry list of funding requests, the State Duma, the lower house 
of parliament, would also be loath to see the printing press shut down 
again once it's been turned on, said Dan McGovern, managing director of 
emerging market research at Merrill Lynch in London. 

The Duma is also in the midst of bargaining for greater powers in 
exchange for confirming Chernomyrdin, whose nomination comes up again 
Monday. Should President Boris Yeltsin agree to a power-sharing deal, 
economic dictator Chernomyrdin might well face even greater difficulty 
controlling his ruble presses. 

Then there are the oligarchs. Outgoing Prime Minister Sergei Kiriyenko 
and his deputy, Boris Nemtsov, have both said they lost their jobs by 
advocating bankruptcies and tax crackdowns against an oligarchy of 
banker-financiers. 

As Nemtsov observed wryly, that would mean Chernomyrdin owes his job to 
that same oligarchy. 

So another open question is whether Chernomyrdin will be able to walk 
the "economic dictatorship" talk and force Russia's leading financial 
oligarchs to share their wealth and pay their taxes. 

One large tax debtor is Gazprom, the natural gas monopoly Chernomyrdin 
himself created earlier in the decade out of the Soviet-era natural gas 
ministry. 

Over the years Chernomyrdin has protected Gazprom -- the richest company 
in Russia, and by some measures in the world -- from heavy tax bills. 
Gazprom's partial privatization was also so untransparent that it is 
unclear to this day who owns it. 

But Boris Fyodorov -- who has held many jobs in government over the 
years and is now a deputy prime minister and head of the State Tax 
Service -- has alleged that Chernomyrdin holds 5 percent of Gazprom 
stock through shell companies. 

Under Kiriyenko, Fyodorov aggressively targeted Gazprom for tax arrears. 
But Friday, Kiriyenko was vacationing in New Zealand, and Chernomyrdin 
was Fyodorov's acting boss. Gazprom's stock soared upon Chernomyrdin's 
return to the White House two weeks ago, and this week Fyodorov told 
reporters Gazprom had handed over 500 million rubles less than expected 
to tax collectors in August. 

As a sign of what is at stake, consider just that one tax payment. 
Fyodorov held his news conference Tuesday, when those 500 million rubles 
were already worth just $45.9 million at the Central Bank's rate of 
10.88 rubles to the dollar. By Friday, Gazprom's overdue taxes were 
already worth just $29.4 million at the official 16.99 Central Bank 
rate. 

"The core of Russia's problem is disrespect for law and [the ability of] 
different operators to influence government policy and to get away with 
not paying [taxes]," said Gunnar Tersman, an economist with the Russian 
European Center for Economic Policy. "If that is what is meant by 
economic dictatorship it could be a good thing." 

Chernomyrdin also said that following that "limited" ruble emission to 
help the government pay its debts, Russia would let the ruble find its 
own exchange rate against the dollar, and then would peg it to the 
Central Bank's hard currency reserves. 

That sounds like the so-called currency board approach. But even Domingo 
Cavallo, the former finance minister of Argentina summoned to advise the 
Russian government, could not say for sure what Chernomyrdin was really 
talking about. 

"As far as I have heard, Prime Minister Chernomyrdin talked of a system 
that could be interpreted as a currency board," Cavallo said at a news 
conference. "I am not sufficiently familiar with Mr. Chernomyrdin's 
program because I did not have any part in drafting and developing it." 

Cavallo was also among those who wondered how the Kremlin would raise 
the necessary reserves and political consensus for such a harsh 
clampdown on the money supply. He stressed that strengthening tax 
collection would be essential. 

Finance Minister Mikhail Zadornov said Russia could raise the necessary 
funds on its own, while Fyodorov said Russia would need to borrow from 
abroad. 

Establishing a currency board would involve wresting currency control 
from state hands and transferring it to an independent board of experts, 
a step that would require the full support of a government now bitterly 
divided. 

The amount of additional hard currency needed to fund the board would 
depend on how much money is in circulation and what exchange rate the 
government chose. 

Fyodorov has said Russia would need an additional $10 to $12 billion to 
create a board, while investment house United Financial Group on Friday 
said it expected the Group of Seven leading industrialized nations to 
provide $14 billion toward the project. 

******

#4
Moscow Times
September 5, 1998 
Economic Policy Baffles Muscovites 
By Valeria Korchagina
Staff Writer

If economists were confused by acting Prime Minister Viktor 
Chernomyrdin's declaration Friday that he would create an "economic 
dictatorship," ordinary Russians on the streets of Moscow were even more 
thrown. 

Chernomyrdin, not known for his eloquence, apparently meant that he 
would clamp down ruthlessly on tax evaders. 

But some thought it meant a return to the Stalinist era. "Oh, my God! 
Economic dictatorship! I knew it was coming," sighed one of the visitors 
at the Manezh underground shopping center next to the Kremlin. 

Most other Muscovites interviewed Friday afternoon greeted 
Chernomyrdin's program with bewilderment. "Say what?" was the most 
common answer to a reporter's questions. 

Fyodor, a student from Moscow State University, was the only person who 
seemed to be clued in to what Chernomyrdin had in mind . 

However, he was skeptical that the plan would ever work. 

"I think that introduction of economic dictatorship will be only a cover 
for yet another redistribution of goodies among the financial elite. And 
then the word 'economic' might as well be removed and we will end up 
with just a dictator, and not necessarily Chernomyrdin," Fyodor said. 

Tatyana, 33, who works for a publishing house, politely demurred from 
giving her opinions on the economic program. "What? I'm sorry, but what 
is a currency board?" she asked, looking bemused. 

Comparing the situation to Argentina in the 1980s, where the government 
combated hyperinflation by implementing similar measures to those 
proposed by Chernomyrdin, failed to ring a bell with Muscovites. 

"What is Argentina to us? It is a known fact that Russians never managed 
to do anything the way somebody else did. We always have to go our own 
way," said a pensioner from St. Petersburg, who gave her name only as 
Valeria Isakovna. 

Her husband, Lev Volfovich, had difficulty coming up with a coherent 
economic prognosis. Instead he offered some homespun philosophy. 

"I and many others always assumed that somebody or something will take 
care of us. I do now. Look at Russian fairy tales. There is always Ivan 
the Fool who knows nothing and does nothing. However, things just happen 
to him and he always ends up being rich and happy," Lev Volfovich said. 

"You know, all those banking disasters will only pass when the 
population [stops] ... hoping that if you plant five golden coins in the 
evening a tree will grow by next morning which will have leaves of 
gold," he added. 

******

#5
New York Times
5 September 1998
Editorial
Russia's Desperate Economic Plan

Desperate political circumstances help explain the contradictory economic
program proposed yesterday by Russia's Acting Prime Minister, Viktor
Chernomyrdin. But it is hard to imagine how its successive phases of
hyperinflationary expansion and ironclad austerity could possibly work. Russia
needs daring economic boldness. But this plan comes dangerously close to
incoherence. 
The initial, expansionary measures reflect Mr. Chernomyrdin's urgent need
for support from Communist and other anti-reform members of Russia's
Parliament when his nomination as Prime Minister comes up for a second
confirmation vote next week. In a first test last Monday, he was defeated 253
to 94. If Mr. Chernomyrdin loses three times, Parliament must be dissolved and
new elections called. That is a risk most Russian politicians, including
President Boris Yeltsin and Mr. Chernomyrdin, would prefer to avoid right now.
The economy is close to imploding and, after two weeks with no government at
all, Russia desperately requires some political stability. 
But if Mr. Chernomyrdin's new program is the price he has to pay for that
stability, it is alarmingly high. Urgently needed reform measures are pushed
back for at least four months, until next January. There can be no confidence
he will be able to muster sufficient political support to proceed even then. 
Meanwhile, Government presses will print worthless new rubles, guaranteeing
a period of hyperinflation that will wipe out personal savings and make any
payment of back wages worthless. Public anger at the politicians responsible
for the financial ruin of ordinary Russians will be fierce. Further, it is
hard to imagine that any new money would be forthcoming from foreign
governments, the International Monetary Fund or private investors during this
first, hyperinflationary phase. 
If, and when, the second phase of the program kicks in, Russia's central
bank will yield control of monetary policy to a currency board that, if it
works, would tie the ruble to foreign currencies or even gold at the cost of
surrendering control of Russian monetary policy to foreign central banks. The
program also promises that inefficient companies will be forced into
bankruptcy and that the tax system will be reformed. These are exactly the
kind of measures that could do a lot of good right now. What will happen in
January is anybody's guess. 

*******

#6
Date: Fri, 04 Sep 1998 
From: "Kipp, Jacob KIPPJ" <KIPPJ@LEAV-EMH1.ARMY.MIL>
Subject: Multiple Militaries and Russia's Political-Economic Meltdown

I am in basic agreement with both Dale Herspring and Steve Blank on the
problem of the uncertain role of the militaries in the current crisis.
Those who say thee is little threat of coup by the regular military may well
be right -- too demoralized, disorganized, and alienated to act. But this
is true only of those forces who focus on external threats and see internal
role professionally repulsive. The multiple militaries that spun out of the
old NKVD-KGB Empire have an entirely different focus and worldview. They
are the internal organs of power against instability. They each have their
own empire and interests---FSB, PSS, FAPSI, BGS, and VVMVD -- have their own
institutional loyalties and missions. They would be the first-line
instruments to deal with disorder in the street. For the last year the
Russian government has been shaking up the leadership of these institutions
and it is unclear just what control the new appointees can exercise over
these forces. Their loyalty is to a man and not weak institutions. They are
the real focus, as they were in 1991 and 1993, for anyone wishing to use
force to achieve his ends. The trouble is we are quite unsure just what
the leaders and the forces would do in a crisis if asked to exercise their
paramilitary-police function or what the response of regular army units
would be to such moves. I fear chaos and disorder. I recently wrote in an
essay on the long-postponed and much ridiculed effort at military reform, I
concluded that progress, given the budget mess, was unlikely. That,
however, did not means a threat of coup by the Armed Forces. A real
military-political crisis would come only if the Russian government was
unwise enough to increase the stress upon the forces by trying to use those
ramshackled forces or other chose the moment of crisis to seek to use
military power on the periphery against a confused, weak, and occupied
center. These would be the worst nightmares.

******

#7
Date: Fri, 04 Sep 1998
From: Anthony Sager <laws@channel1.com> 
Subject: Constitutional options for President; succession

Press coverage and JRL discussion have assumed that the Duma's left
opposition is likely to increase its strength in any Duma elections
resulting from the dissolution of the Duma following its third rejection
of Viktor Chernomyrdin as Prime Minister. While opinion polls support
this conclusion, the RF Constitution and laws and Presidential tactics
could produce a completely ineffective State Duma if elections are held
before May 1, 1999, in either of two possible scenarios.
First, if dissolution occurs soon and elections are then held within 90
days, the current opposition parties (and NDR as well) could not
participate in elections for the Duma's 225 party-list seats because
they initially overlooked the charter amendment and registration
requirements resulting from the 1997 federal law on voters' rights and
referendums. The Ministry of Justice on Sept. 2, 1998, announced that
no party will be eligible until May, 1999, because of a one-year
registration requirement. (RFE/RL Sept. 3, 1998; cf. RFE/RL Apr. 23,
1998) Thus an election could fill a maximum of 225 seats, from
single-mandate districts only. This would make the Duma legally
ineffective by being constitutionally incapable of adopting any
resolution, passing any law, or voting no-confidence in the Government. 
The Constitution requires a "majority of votes of the total number of
Deputies of the State Duma" for these actions by the Duma (Art. 103,
para. 3; Art. 105, para. 1; Art. 117, para. 3, respectively), which the
Constitutional Court interpreted to mean a majority (226) of the total
number of mandates (450) (1995 Sob.Zak.RF no. 16, art. 1451). Duma
action needing 2/3 or 3/5 majorities, such as overriding a Presidential
veto, would also be impermissible. The President would be able to
govern by decree, since passage of legislation would be impossible. A
half-Duma of single-mandate Deputies would likely have different
dynamics and leaders than the current one, and certainly have less
credibility for having forced an election leading to its own
emasculation.
Second, if the Duma rejects the President's appointed Prime Minister
three times, President Yeltsin has the constitutional power to make the
appointment, dissolve the Duma, and announce new elections (Art. 111,
para. 4). The Duma's initiation of impeachment proceedings blocks the
dissolution of the Duma (Art. 109, para. 4) but does not void the
President's power of appointment after the third rejection. The
Constitution thus leaves the President's choice of a Prime Minister in
office pending resolution of the impeachment proceeding. Then if the
Duma twice within three months votes no-confidence in the Government,
the President either dismisses the Government or dissolves the Duma
(Art. 117). Because a pending impeachment proceeding blocks dissolution
in this situation also (Art. 109, para. 4), the President has no choice
but to dismiss the Government. However, during the three months allowed
between the Duma's charges and the Federation Council's decision for or
against impeachment on these charges (Art. 93, para. 3), the President
could appoint an Acting Prime Minister - including Mr. Chernomyrdin
again - without much likelihood of a Constitutional Court decision then
or later deeming this unlawful. And the President lawfully could reduce
this period by obtaining a Supreme Court decision that the Duma's
charges did not amount to "high treason or another grave crime" (Art.
93, para. 1) -- not a difficult task given their political nature (e.g.,
Belovezhskiy Accord, etc.) With impeachment out of the way, the Duma
could be dissolved, and elections held before May 1, 1999, resulting in
an ineffective Duma, as discussed above.
Neither scenario leads to greater stability or to greater legitimacy of
either President or Duma. However they indicate that the President has
constitutional options which give him bargaining leverage against an
opposition which accepts nothing short of its choice of Prime Minister
and/or impeachment, some maneuvering room in the timing of Duma
elections, and a limited period for governing by decrees.
Addendum regarding succession (responding to JRL 2348): The
Constitution's Art. 111, para. 4, discussed above, explicitly empowers
the president to "appoint the Chairman of the Government of the RF" as
well as dissolve the Duma and call new Duma elections after the Duma's
third rejection of the President's Chairman (PM) nominee. The
terminology is "Chairman" not "Acting Chairman"; nor would there be any
logic in interpreting this to mean "Acting Chairman" in the context of a
dissolved Duma (since there would be no legislative body to decide on
confirmation or not) and of a maximum four month delay until new
elections (Art. 109, para. 2). This appointment power is not suspended
pending impeachment proceedings, as is dissolution by Art. 109. Thus
this constitutionally appointed Prime Minister could lawfully become
Acting President under Art. 92. If President Yeltsin cannot get
Chernomyrdin (or another nominee) confirmed with minimal concessions to
the Duma majority, this may be his remaining constitutional option.

********

#8
From: Telos4@aol.com (John Danzer)
Date: Fri, 4 Sep 1998 
Subject: Western Press Still Doesn't Get It

I don't remember if David Johnson ever set out a formal objective
for his Russia List but I vaguely remember that it had something to
do with the way the American Press was reporting things. Here are
a few items I keep seeing in various write-ups that indicate they
still don't get "it".

1. LUZHKHOV IS A/THE PRIME CANDIDATE FOR PRESIDENT. This is hard
to believe when you consider he has become the symbol for Moscow
which is the headquarters of THEFT, Inc. If Luzhkov becomes
President his authority will be no greater and extend no further
than it does right now.

2. ELECTIONS IN THE YEAR 2000. There will be NO presidential
elections for at least a decade. Russia can't afford an election
right now when it really needs one. So whoever gets the power will
get it by default or public clamor and he will not be disposed to
call elections before his work is finished.

3. ZYUGANOV IS LEADER OF THE COMMUNIST PARTY. There are NO
significant communists in Russia. They are just one of the larger
Nationalist parties.

4. THE ARMY WILL NOT BE INVOLVED IN POLITICAL BATTLES. This is at
best a version of the past equals the future. Actually, the Army
has already become involved. They were used by Yeltsin to batter
a legitimate branch of the government in 1993. The Army may be
used to maintain order in Moscow and St. Petersburg. However, when
things get to that point it will be a signal for the various
provinces, territories, etc. to declare their independence from the
center. At that point you will have at least a dozen armies. Some,
like Krasnoyarsk will have their own nuclear weapons.

5. YELTSIN PUT DOWN A "COUP" ATTEMPT IN 1993. Yeltsin in fact
conducted his own successful coup in 1993. He shut down the
legislature using unconstitutional force. The West made their
biggest mistake by failing to condemn Yeltsin. In fact Yeltsin
consulted the West and got their assurance that they would back him
in this illegal maneuver. It was at that point that the West lost
Russia. The deterioration we see today followed inexorably from
that fateful moment. 

6. YELTSIN IS A SURVIVOR. Yeltsin set up a constitution that made
it impossible for a blundering, drunken, sick, senile fool to be
removed as president. The West was so quick to try out their best
models of privatization and economic development. Where were the
advisors who set up one of the worst models for democratic
government in modern times.

7. THE FALL OF THE SOVIET UNION. The Soviet Union didn't fall. It
was simply ignored by Yeltsin and signed away so he could get even
with Gorbachev. The people of the Soviet Union never had a chance
to express their will in a referendum. Again, instead of Bush
telling Yeltsin that he couldn't do that with a simple signature
and advising Yeltsin on the democratic way of doing things he
encouraged Yeltsin over the infamous HotLine that the West was
behind him. This kind of stupid blundering by the so-called
leaders of the Democratic World has set the stage for everything we
see happening now.

When the Western Press starts explaining what really happened,
well, then I guess I won't need JRL any longer.

******

#9
Date: Fri, 04 Sep 1998 
From: fweir@rex.iasnet.ru (Fred Weir)
Subject: FREE FALL

In These Times
forthcoming issue
FREE FALL
By Fred Weir

MOSCOW

As Russia's public finances melted down, the ruble crashed,
social tensions heated up and the political system built by
President Boris Yeltsin began to unravel in August, no one
remarked on the irony that these panic-stricken days marked the
anniversary of the glorious "August Revolution" of 1991.
Nobody wanted to notice, perhaps, because the contrast was
unbearably stark.

In that delirious moment seven years ago, thousands of Muscovites
turned out to defend their freely elected parliament --
headquartered in the Russian White House -- from troops sent by a
gang of old-line Communists trying to arrest the breakup of the
USSR. The coup plotters capitulated within days, without firing a
shot, and a triumphant Yeltsin mounted a tank amid cheering
crowds to proclaim the dawn of a new era. He pledged freedom,
democracy and prosperity based on "a normal civilized market
economy."

The Yeltsin who faced the nation in a painful, brief televised
interview late last month was almost unrecognizable as the same
man, and he had no hope whatsoever to offer. Looking pale, ill
and disoriented, he irritably waved away a question about the
population's economic agony and promised, without giving details,
to resolve Russia's worst crisis in postwar history. But there
was a flash of his old defiance when asked about rumors of his
impending retirement. "I want to say that I'm not going
anywhere," he said. "I'm not going to resign. I will work as I'm
supposed to for my constitutional term. In 2000 there will be an
election for a new president and I will not run."

But Yeltsin's survival over the next few months appears
increasingly doubtful as all the chicks from seven years of
corrupt misrule come flocking home to roost in the Kremlin. "The
Yeltsin era is over," says Alexander Konovalov, an analyst at the
independent Institute of Strategic Assessments. "He may remain,
like a shadow in the Kremlin, but nothing will ever be the
same again. Most Russians now see him as the problem, not the
solution."

In the early autumn drizzle outside the White House--now the seat
of government -- a group of coal miners protesting months of
unpaid wages were willing to put that thought more succinctly.
"All our troubles have been caused by one man, Boris Yeltsin,"
says Alexander Vassiliyev, a 44-year-old pit worker from the grim
Arctic coal center of Vorkuta. He is one of 300 miners who have
been besieging the White House since last May with a single
demand: Yeltsin must resign. "We are not ending our vigil until
that bastard is gone."

Similar sentiments came from the streets of Moscow, where
Russians are scrambling to spend their evaporating rubles on
anything durable or standing in forlorn lines outside of troubled
banks trying -- often in vain -- to rescue their savings.
"Everything is collapsing as if it never existed, while he
pretends to be Czar of Russia," says Svetlana Kiryanova, a
37-year-old graphic artist, jostling with other panic-stricken
Muscovites in a downtown department store. Igor Svetlichny, a
27-year-old construction engineer, is more blunt: "Everything

Yeltsin says and does is a lie. I'm sick of his face."

The current crisis may be dated from last March, when a jealous
Yeltsin sacked his long-serving prime minister, Viktor
Chernomyrdin, a tough bureaucratic survivor, for seeming too
credible in his constitutional role of heir apparent to the
president. Sergei Kiriyenko, a young political unknown from the
provinces, was installed in the post. The opposition-led Duma,
Russia's lower house of parliament, was subsequently browbeaten
-- after a long and bruising battle -- into approving Kiriyenko.
"Yeltsin struck a blow against political stability just as a
world-wide economic crisis was about to hit," says Viktor
Kuvaldin, an analyst with the Gorbachev Foundation, a think tank
financed by the former Soviet leader. "A destructive genius
couldn't have developed a better plan."

By late spring, Russian and foreign investors, spooked by the
crisis in Asia, were stampeding out of the country. The Moscow
stock market -- ranked the world's best-performing in 1997 --
vaporized, losing almost 90 percent of its value since January.
More seriously, investors started dumping Russian state bonds,
the main instrument the government has used to finance its
budget deficits in recent years. As the crisis gathered steam in
July, the International Monetary Fund (IMF) stepped in with a
$22-billion bailout package designed to stave off the collapse of
Russia's public finances. The markets paused briefly, then
nose-dived again. On August 17, the Kiriyenko government bowed to
the inevitable and permitted the battered ruble to find its own
level. It immediately collapsed, falling to barely a third of its
former value within three weeks.

Yeltsin, who spent most of the summer on vacation, reacted to the
crisis in late August by sacking Kiriyenko's 5-month-old cabinet
and bringing back Chernomyrdin. But few believe that
Chernomyrdin, who was prime minister from December 1992 until
last March, will be able to stem the galloping financial crisis
and rising social unrest. "Yeltsin has replaced a man who
couldn't do anything in five months with one who couldn't do
anything in five years," quips Boris Kagarlitsky, a left-wing
philosopher with the Russian Institute of Comparative Political
Systems.

The coal miners huddled in the rain outside the White House
agreed. "I haven't seen any wages since last October -- and
Chernomyrdin was prime minister then," says Valentin Drachenko, a
tall 49-year-old with a harsh cough that he jokes is his only
reward for a lifetime toiling in a Vorkuta mine. "Bringing back
Chernomyrdin is just an act of desperation."

Russia's economic disaster runs far deeper the current financial
collapse. The country's economy has been shrinking steadily for
almost a decade; investment in plant and infrastructure is
currently below a quarter of the level it was in 1989. Much of
the Soviet Union's former industrial heart is now a wasteland of
rustbucket factories that produce little but do not go bankrupt.
They survive on a trickle of state subsidies, by bartering with
other insolvent firms and by deferring the wages of their
employees. More than half of all Russian workers suffered
disruptions in their incomes last year; one in four went for at
least three months without seeing a paycheck. "The problem of
wage arrears is a social time bomb waiting to explode," says
Galina Strela, executive secretary of the 50-million-member
Russian Federation of Independent Trade Unions, which is
threatening to stage a general strike over the issue this fall.
"Successive Russian governments have created a semblance of a
private economy and market institutions. Underneath, the
picture is one of rot and ruin."

Russia's few profitable economic sectors were handed over to a
small clutch of well-connected tycoons -- so rich and powerful
they have been dubbed oligarchs -- after they united to help
Yeltsin win re-election against a Communist challenger in 1996.
"In Russia, politics and economics have always been two sides of
the same coin," says analyst Kuvaldin. "Political victory for
Yeltsin brought financial victory for his backers. That's how the
oligarchy was built."

But the vast revenues from Russia's lucrative raw materials and
international arms trade have vanished into the great global
stream of capital or perhaps were lost in Moscow's now virtually
extinct stock market. "Our crisis looks hopeless," says
independent analyst Andrei Piontkowski. "The system of oligarchic
capitalism created under Yeltsin has sucked the country dry. It's
hard to see where we can find resources to implement any new
economic policy."

The oligarchs may have been instrumental in pressuring Yeltsin to
fire Kiriyenko and bring back their old friend Chernomyrdin.
"Chernomyrdin is their man. The oligarchs prospered under his
administration and they feel he's the best one to save their
situation now," Konovalov says. "He will never suggest seizing
their property."

Chernomyrdin's first road-block is the Duma, which dug in its
heels and overwhelmingly voted him down in its first vote on
August 31. According to the Yeltsin-authored Constitution, if
parliament rejects the president's candidate three times it must
be dissolved and new elections called. Unlike last spring's
struggle over Kiriyenko's confirmation, when the Duma caved in
during the third round, parliament may be ready to go to the
wall this time. "We cannot accept Chernomyrdin, he is an
accomplice with Yeltsin in the destruction of Russia's economy
over the past five years," says Gennady Zyuganov, the Communist
leader whose party controls half the Duma seats. "We are not
afraid of dissolution or new elections. We will welcome it."

If Chernomyrdin is not confirmed, Yeltsin may disband the
legislature, appoint the prime minister and rule by decree until
a new Duma convenes. That would leave Russia facing months of
turmoil without a legitimate government. Some analysts fear even
the country's partial democracy would never survive the
combination of extended political crisis and acute economic
prostration. Even if the Duma does knuckle under to Yeltsin's
will and approve Chernomyrdin, the outlook is bleak. Experts
believe that Russia's economic troubles are only beginning, and
the country's leaders will be heading into this storm with their
credibility at its lowest ebb. The only time Chernomyrdin ever
stood in an election -- the parliamentary polls of 1995 -- the
party he led won less than 10 percent of the popular vote.

Nor will Yeltsin's backing be much help. A survey of 1,500
Russians conducted by the Independent Public Opinion Foundation
at the end of August, found that 67 percent blamed Yeltsin
personally for the country's woes and that 66 percent want him to
resign. "In past crises, Yeltsin has always managed to strengthen
his own position through confrontation with his opponents," says
Igor Bunin, an analyst with the Center for Political
Technologies, a private think tank. "But now he is being weakened
by each new shock. It's hard to shake the impression that these
are the final hours of this regime."

Nevertheless, Yeltsin was strong enough to host Bill Clinton at a
lavish two-day Kremlin summit in early September. The two leaders
produced nothing of substance, but tried to put the best face on
their separate political troubles. Clinton addressed students at
Moscow State University with a clicheed "stay the course"
message. "I do not believe the solution for Russia is reverting
to the failed policies of the past," he said. Presumably, Clinton
was not referring to the failed policies of the recent past, but
to emergency economic strategies being debated in the Duma that
would slap controls on capital markets, create tariff barriers
and perhaps re-nationalize some strategic industries. Clinton was
emphatic that the United States will provide no new money, but
said Russians could look forward to Washington's support as long
as they "continue to move decisively along the path of
democratic, market-oriented constructive revolution." The IMF was
issuing similar statements, and warning that it might delay
payment of a $4.3-billion tranche of its bailout package until
Russia's economic situation stabilizes. Duma leaders recognize
that as a veiled threat to cut off the loans if they fail to
approve Chernomyrdin as prime minister.

The role of Western advice in Russia's post-Soviet economic
disaster is a rising theme among Russian thinkers and
policy-makers, and Clinton's Moscow pronouncements offered little
reassurance or clarity. The English-language Moscow Times -- the
voice of the foreign business community in Russia -- declared in
an editorial that Clinton's message was empty and baffling: "[For
years] the West has heralded vague 'reforms' and has encouraged
Yeltsin to ... stay the course. If Clinton is now
uncomfortable visiting such an obvious U.S. foreign policy
failure as Russia, he is welcome to shoulder some of the blame."

Meanwhile, the foundations of the Yeltsin-era status quo are
crumbling. Duma leaders say it's time to reverse the consequences
of yet another autumn crisis: the bloody showdown of October
1993, when Yeltsin literally blasted his old parliamentary
comrades out of the White House. In the political space carved
out by his tanks, Yeltsin authored a new Constitution, bestowing
the lion's share of power on the Kremlin and reducing parliament
to little more than an ornament. But financial collapse and his
own bizarre decision-making -- such as changing governments twice
in 6 months -- have pushed the aging and weakened president to
the brink of oblivion. Not only the Communists, but also Grigory
Yavlinsky's liberal Yabloko party, are pressing for Yeltsin to
transfer some of his sweeping presidential authority to
parliament in exchange for its cooperation in confirming
Chernomyrdin. "We are witnessing the breakdown of the system of
power that Yeltsin built," says Nikolai Petrov, an expert with
the Carnegie Endowment in Moscow. "Serious constitutional change
is now on the agenda."

Or maybe not. Unlike his predecessor Mikhail Gorbachev, Yeltsin
is not one to leave the game when he runs out of cards to play.
Unless his increasingly fragile health suddenly gives out,
Yeltsin will fight hard to stay in power. He recently replaced
the head of Russia's secret police -- the former KGB -- with a
man from his own Kremlin staff, and has been seen meeting with
military and security chiefs recently. Another showdown could be
in the offing. "Autumn is historically the time for political
conflicts and revolutions in Russia, usually following on the
heels of a deceptively quiet and peaceful summer," Kuvaldin says.
"This time we are tumbling into autumn after a catastrophic
summer."

********

#10
Russian economics chief spells out plan

MOSCOW, Sept 4 (Reuters) - Russia will print money to wipe out its domestic
debts so it can start reforms with a clean slate, First Deputy Prime Minister
Boris Fyodorov, who drew up the acting government's economic plan, said late
on Friday. 

In an interview with Russian public television, Fyodorov spelled out in fuller
detail the economic plan unveiled by acting Prime Minister Viktor Chernomyrdin
in an earlier address to parliament, which called for "economic dictatorship"
starting in January, and "controlled" monetary emission before then. 

Fyodorov said Russia would print money to pay off all its debts before tying
the rouble strictly to the country's foreign reserves. 

He conceded that the plan would cause a short-term burst of inflation, but
said it was necessary so that serious economic reforms could begin unburdened
by the debts the government racked up in eight years of half-hearted reforms. 

"We have to settle accounts with the past. Today we have an enormous quantity
of debts, the budget is not balanced. Everybody wants (monetary) emission.
Listen to what they are saying in the (parliament)," he said. 

"The scheme on offer is very simple. With the aid of certain operations, about
which it is still too early to comment, we will pay just about all the debts
that can be paid," he said. 

"Then we will balance the budget, the rouble will be strictly tied to the
country's hard currency reserves, tax reform will be carried out, tax
collection beefed up, and a row of other measures." 

Fyodorov, who held the post of tax chief in the outgoing government of
reformist former Prime Minister Sergei Kiriyenko, was renamed first deputy
prime minister with control over the economy by President Boris Yeltsin on
Wednesday. 

"Why is it necessary to settle accounts with the past? Because otherwise
everybody will tell us, look, you owe us this and that. Now it's -- okay,
fine. You'll get it. You want everything, fine. Take everything today. But be
aware that prices will rise. 

"After that, either we can continue to print money, in which case prices will
still continue to rise, or we can stop and finally begin to carry out
reforms," Fyodorov said. 

Prices have already been rocketing with the fall of the rouble. Inflation
soared to 15 percent in August against 0.2 percent in July, the state
statistics committee said on Friday. 

But some prices have risen at an even more alarming rate -- crossing the 50
percent monthly threshold into hyperinflation -- as retailers tried to keep up
with the dizzying descent of the rouble which has lost nearly two thirds in
value over three weeks. 

Fyodorov headed a group that drew up the new economic plan which Chernomyrdin,
who is seeking confirmation from parliament, presented to the Federation
Council upper house on Friday. 

Fyodorov and Chernomyrdin have met former Argentine economics minister Domingo
Cavallo this week, giving the impression that they hope to institute a
currency board, which would directly link the amount of roubles in circulation
to hard currency reserves. Cavallo oversaw such a plan in Argentina, which
broke that country's hyperinflation in the early 1990s. 

Chernomyrdin and Fyodorov have not specifically said their plan would lead to
a currency board. 

*****