Yeltsin, Reforms Are Losers in Russia Reshuffle

MOSCOW —  President Boris N. Yeltsin shelved Russia’s dim hopes for a Western-style economic future Monday, handing over executive power now and a stab at the presidency in two years to Viktor S. Chernomyrdin and his big-business constituency of tycoons known here as “financial oligarchs.”

Chernomyrdin, abruptly appointed acting prime minister Sunday night after being fired from the premiership five months ago, will take charge of tackling a financial crisis engulfing Russia. The president made clear in a televised address to the nation Monday that Chernomyrdin, symbol of stability to Russians during his five sedate years as prime minister, now has carte blanche.

“Yeltsin Surrenders Power,” the influential daily Izvestia’s headline read Monday evening. It ran a picture of a grim, puffy faced president, eyes closed, kissing Chernomyrdin on the lips.

The 60-year-old’s return to the premiership enhances his expected bid for the presidency in 2000.

While Western governments offered timid endorsement of Yeltsin’s Cabinet shake-up, economists warned that Chernomyrdin’s methods probably will turn Russia away from the unpopular austerity measures that the West has prescribed for the giant country’s stricken economy and that former Prime Minister Sergei V. Kiriyenko, fired Sunday, had tried to impose.

Among members of the outgoing Cabinet who have no intention of working with Chernomyrdin are the two arch-liberal golden boys of the Western financial world: Deputy Prime Ministers Boris Y. Nemtsov and Oleg N. Sysuyev.

Nemtsov refused to comment on whether the president had done the right thing by firing Kiriyenko and his Cabinet other than to say through pursed lips: “The president’s decisions are either correct--or not discussed.”

Nemtsov offered his resignation Monday, ignoring Chernomyrdin’s plea for government members to stay in place until a new lineup is ready. “It is all too difficult to carry out any reforms . . . in the conditions of such an ugly market, where competition is nonexistent, monopolies are rampant, and rules are few,” Nemtsov said in a swipe at the stranglehold Russia’s financial oligarchy has on a country where democracy has not quite taken root.

The oligarchs, loathed by most Russians, are the handful of businesspeople--either former Communist Party officials such as Chernomyrdin or early winners in Russia’s transition to winner-take-all capitalism--who have made immense fortunes this decade. Their commitment to Russia’s future, and to notions of democracy or development, is hazier than their intention to carve up political and economic power in the country among themselves.

Russia’s financial woes--brought on last fall chiefly by the Asian economic crisis and a drop in world prices of oil, Russia’s main export--prompted Yeltsin last week to allow the devaluation of the overpriced ruble and delays in repayment of some short-term government debt in an attempt to save the economy with a painful dose of tough love.

Letting the Russian currency fall, from the artificial levels it had been propped at throughout the Chernomyrdin era to something closer to a natural market level, will make imports more expensive. As Kiriyenko envisioned the ruble’s fall, it also would have wreaked havoc in Russia’s new, chaotic and ill-regulated banking sector, raising the specter of mass bankruptcies among the less viable institutions--and, as a byproduct, a loss of wealth for oligarchs who own those shaky banks.

The president--now 67, increasingly unpopular and just two years from the end of his term--apparently lost his nerve for the frightening gamble with austerity by last weekend. After a week of fear and distrust--inside the country from business leaders who were scared the government would let their failing banks and firms collapse and outside the country from investors appalled by the decision to delay, some say default, on payment of short-term debt--Yeltsin fired the Kiriyenko government.

“Yeltsin became extremely weak after the crisis; his reform move backfired and he’s become a lame-duck president,” said Al Breach, economist at the Russian-European Center for Economic Research in Moscow. “He had a choice of seeing himself impeached or chucked out of power somehow, or of handing over to someone he thought might at least make the best of a bad job.”

“It’s disastrous,” Breach added. “The government to come will be ruled by the oligarchs. What needs to be done now is to slash budget spending and let dud banks go to the wall. But what this government is likely to do is the opposite: to print money and use it to give to the banks and pay state wages--to protect the oligarchs’ fiefdoms. The crux today is what the new regime’s going to be about--and that’s about having a place at the trough.”

Confirming this gloomy prognosis, Chernomyrdin delayed--perhaps until today, perhaps later--detailing a debt-swap scheme to compensate investors whose money is frozen under the 90-day debt moratorium introduced last week.

Chernomyrdin also asked parliament to delay considering a package of anti-crisis measures put before it for debate by Kiriyenko.

The departing Kiriyenko told journalists that Russia’s crisis “was just beginning.” Every government will face the same problem, he said, of “looking for political support for carrying out tough, unpopular measures.”

The official Kremlin view, expressed by Yeltsin spokesman Sergei V. Yastrzhembsky, was that economic reform will continue as before under the new bosses but with the previous government’s mistakes corrected.

Chernomyrdin’s appointment must be approved by a reluctant parliament. The acting prime minister and deputies agreed Monday that they will work together to form a coalition government. Chernomyrdin’s candidacy will be voted on by the Duma, the lower house of parliament, at the end of the month.