A New Government and a New Crisis Will Test Yeltsin’s Staying Power

Russian President Boris Yeltsin is a man who thrives on crisis, yet he always has found day-to-day governance more problematic. Now he faces an economic emergency much like those still sweeping through Asia, toppling governments in their wake. Unfortunately for Yeltsin, the causes of Russia’s economic ills run too deep to be solved by the sorts of grand gestures that have served him so well in the past.

Russia’s latest political and economic crisis has been brewing at least since March, when Yeltsin disappeared from public view, suffering from one of his increasingly frequent and obscure medical complaints. His absence triggered another round of speculation about the inevitable succession. The issue is a vital one, since the presidency is the overwhelmingly powerful post in Russia. The legislature, or Duma, has only two significant powers: the right to vote on the budget and to approve ministers nominated by the president.

When Yeltsin returned to center stage, he promptly fired his prime minister, Viktor S. Chernomyrdin, and virtually his entire Cabinet. Chernomyrdin was widely respected, had secure political connections with Russia’s vital energy industries and seemed to be unswervingly loyal to his president. The reasons for his firing remain unclear.

Yet, the most plausible reading of Yeltsin’s dramatic governmental reshuffle is that he was seeking, by means of the grand gesture that he always favors, to demonstrate that he is tackling Russia’s key problems. These problems are grave indeed. Every poll suggests that the Russian people feel at least as disengaged from politics today as they ever did under communism, despite the trappings of democracy.

The economy stagnates as miners and other workers strike for pay arrears of many months, interest rates have risen to an unsustainable 150% per annum and as much-needed foreign capital flees the political, legal and social volatility of Russia. In the last week alone, the Russian stock market lost 10% of its value and the ruble came under enormous pressure as foreign speculators dropped their Russian currency holdings.

Average Russians, who do not have the kind of retirement investments that have boosted Western stock prices, do not much care about the fate of investments. But should the government be forced to devalue the ruble, this almost certainly would reignite hyperinflation, the ending of which is one of Yeltsin’s few economic achievements. Furthermore, the lots of average Russians are deteriorating even as they watch the so-called “new Russians” enrich themselves on the pickings of the Soviet industrial carcass, once touted to be the common property of all citizens.

In the years since Mikhail S. Gorbachev’s failed attempts to revitalize the U.S.S.R., Russia almost has ceased to be an industrial economy. Instead, like other developing nations, it survives by selling raw materials and commodities to the more advanced West. Above all, this means energy. Russia sits astride roughly 20% of the world’s known oil reserves and 40% of its natural-gas fields. Although the prices for both resources have been dropping recently, Russia’s holdings represent the last great frontier in the energy business. Furthermore, following a great deal of political and back-room wrangling, Russia’s oil industries are scheduled for privatization later this year. It is as though a vast, continentwide bankrupt estate is about to go under the auctioneer’s hammer.

Accordingly, the terms of privatization are critical. Understandably, virtually all Russians agree that ownership must be kept in Russian hands. There, however, agreement ceases. Some hope, idealistically, that ordinary Russians might be able to share in the bonanza. More realistically, Russia’s robber-baron banking elite wants to carry off the juiciest bits of carrion without the bother of open competition. In fact, led by the media king and banking magnate Boris A. Berezovsky, they contend openly that this is no more than their just desserts.

When Yeltsin ran successfully for reelection in the summer of 1996, these shady financial titans opened their purses and provided lavish and glowing television and radio coverage favoring his campaign. As a result, Yeltsin soared from a 5% public approval rating in early 1996 to defeat a strong challenge from the communist candidate, Gennady A. Zyuganov. Their assistance did not stop after the election. Yeltsin’s government consistently has proved unable to collect taxes from outlying regions and from businesses. The president’s generous banking friends stepped in with bridging loans, accepting as collateral the choicest plums of the state-owned economy. As the Russian state defaults on its debts, the country’s wealth has thus fallen into private hands.

Berezovsky has crafted a Social Darwinian theory to justify this outcome; in his view, the state ought to be unashamedly controlled and managed by the most able financial men, whose abilities can be gauged by their capacity to amass wealth. In this way, Berezovsky says, Russia as a whole will benefit. Clearly, this is a view with limited public appeal, and it confirms most Russians’ gloomy--and, sadly, not entirely misplaced--beliefs that one set of communist masters has been replaced by another gang of capitalist bosses.

With his latest round of government appointments, Yeltsin may be trying to address this growing problem. His appointee to the post of prime minister, whom he drove through a reluctant Duma, is Sergei V. Kiriyenko, a 35-year-old too young to have held a responsible position under the Soviet order. Unlike Chernomyrdin, who rose to prominence in the energy sector and seemed ready to sell off the Russian oil company Rosneft on favorable terms to the banking elite, Kiriyenko is less tainted as an insider. He has served as Yeltsin’s energy minister since last November, so he has some experience in what is clearly the most important sector of the Russian economy, but he has not been around long enough to gain notoriety.

Kiriyenko began his political career as a protege of Boris Y. Nemtsov, the former mayor of Nizhny Novgorod, the old industrial city on the Volga that has managed to retool and is now the closest thing to a success story Russia’s wounded economy has to offer. For unclear reasons, perhaps related to Kremlin infighting, Kiriyenko leapfrogged his old patron to gain the top position. Nemtsov was left with the still-significant energy ministry. Yeltsin apparently believes that his new, younger and more reformist team can convey the image that his government is earnest about countering the corruption of money and creating a functioning market economy. He may also see it as a way to distance himself from his erstwhile big-money backers.

His former allies may see things the same way. Berezovsky has financed the successful campaign of Alexander I. Lebed for the governorship of the Krasnoyarsk region, an area almost as rich in natural resources as it is in idle, obsolescent factories. Lebed placed third in the presidential voting of 1996 and is a former general who trades on his image as an incorruptible patriot. It is a politically powerful image in a country that still names the army as its most trusted institution. That Lebed is accepting financial assistance from the same man who helped keep Yeltsin in office may indicate that Russia’s big money is already jockeying for the post-Yeltsin era.

It is too early to tell whether Kiriyenko’s steely determination to halt the speculative attack on the ruble will preserve the stability of Russia’s currency and forestall the return of hyper-inflation. It is even more doubtful that, by means of Cabinet reshuffles, Yeltsin can distance himself in the public mind from the corruption and stagnation that have characterized his second term. Nonetheless, if he makes any headway at all in these directions, he will once more have confounded his critics and proved yet again that he is a very impressive political escape artist indeed.