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Yeltsin Yields to the Oligarchs
With his popularity at zero, the president turns power
over to the man who fronts for energy and financial

The soft coup d'etat that took place in Moscow last weekend is almost complete. Boris Yeltsin, who exactly seven years ago was able to stare down perpetrators of another coup from atop a tank, has himself been transformed into a figurehead. Ironically, he fell victim to his own success at inspiring confidence in the inconstant course of reform during his presidency.

Victorious at the polls from 1991 to 1996, Yeltsin alone had a mandate to carry out the unpalatable policies needed to establish a market economy, while at the same time offering a cover for the transfer of state assets to the country's elite, his presidency's decisive constituency.

For the last seven years, in sickness and in health, he managed to balance the interests of capitalism with the interests of Russian capitalists, while making sure that the population at large kept its peace. Such a balancing act between fair play and double dealing inevitably diminished his reputation. When in March he sacked the diumvirate of Viktor S. Chernomyrdin and Anatoly B. Chubais and appointed a strictly reformist team headed by Sergei V. Kiriyenko, he was making a push not only for furthering reform but also for his place in history--to be remembered as the leader who brought his country not corruption and privation but prosperity, honor and prestige.

Kiriyenko's main charge was to secure the survival of what was, perhaps, the greatest achievement of the Russian reform: the relatively stable, freely convertible national currency and a tolerably low inflation rate. Even more than Yeltsin's previous lurches toward reform, this one could succeed only if he protected his government from the assaults of the energy monopolies and the financial giants, who preferred to play by their own rules.

The Asian crisis, the skittish financial markets and the precipitous drop in commodity prices, accounting for much of Russia's revenue, made the reformers' task fabulously difficult. Notwithstanding the $23-billion International Monetary Fund loan, Russia's Central Bank had to keep borrowing money by issuing short-term bonds in order to service its internal debt. The cost of this borrowing, or the interest at which investors were willing to buy the bonds, kept climbing so fast that by midsummer the debt servicing system began to resemble a pyramid scheme. Russian banks, which had grown rich speculating on these bonds and had become addicted to their dizzying rate of return, found themselves at the edge of the precipice.

Then was the time for Yeltsin to intervene, but for whatever reason (most likely his health), he left Kiriyenko to fend for himself. Emboldened by the government's weakness, the Duma waved away Kiriyenko's austerity package. Investors smelled a rat and began to flee; banks began dumping rubles in favor of dollars. Yeltsin serenely departed on vacation. A few days prior to the devaluation of the ruble, taking time from his summer rest to visit a meat packing factory, he continued to insist on the permanence of the ruble exchange rate. He was, it seemed, not in touch with reality.

According to Boris Y. Nemtsov, a first deputy prime minister in Kiriyenko's government, the moment of truth came when the oligarchs found out about Kiriyenko's plans to pull the plug on several major banks. The Central Bank was supposed to take them over and auction them off to the highest bidder (probably some financial institution in the West, given the cash-strapped Russian economy). Threatened with the loss of their property, the oligarchs last weekend put the screws on Yeltsin. He caved and passed the reins back to Chernomyrdin, the principal draft horse of the energy and financial interests.

With his own approval rating at around 4%, ailing and out of touch, the president of Russia could no longer function as the country's chief confidence-builder. His Monday address to the nation, which he read with some difficulty, had the air of a farewell speech of a diminished giant: He promised not to interfere with the work of the prime minister and, for what such declarations are worth, designated Chernomyrdin as his successor in 2000.

Chernomyrdin bargained hard to get an unprecedented mandate--even the "power ministers" (defense, internal affairs and federal security) henceforth are to report directly to the prime minister. Pushing aside the credo of Yeltsin's presidency, Chernomyrdin called for the creation of a coalition government based on the political mix of the Duma. This would amount to transforming Russia's presidential system (akin to the American and French models) into a parliamentary one.

With Yeltsin's political popularity shrunk to zero, Chernomyrdin is free to expand his own, and he is now reaching out not merely to the Communist and left parliamentary majority but also to the other majority in the Duma--the lobbyists for the new owners of the country's wealth. To satisfy their appetites will require printing more money--and the presses are revving up.

For the time being, at least, Yeltsin has given up trying to rehabilitate his legacy, perhaps in exchange for the security of his own old age and that of his family--something that "the reformers could not assure," according to Boris Berezovsky's influential newspaper, the Independent.

The oligarchs have achieved a tactical victory, but to be effective, Chernomyrdin will need to balance their interests with the interests of other powerful forces and groups. He is now in Yeltsin's shoes, albeit with a tarnished shine. His smile is more strained, but like Willie Loman, he must try to continue to sell confidence in the Russian state, if only to avert the unthinkable.

Yeltsin's "friend Bill" will be able to see this and more for himself should the U.S. president arrive in Moscow as planned on Tuesday for a two-day summit. - - -

Gregory Freidin Is Chairman of the Department of Slavic Languages and Literature at Stanford University

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