Yeltsin Banks On The West And On Grass Roots Capitalism

On the surface, it may appear that Russian President Boris N. Yeltsin is doomed. Bent on turning back the clock, hard-line conservatives at the Congress of People's Deputies humiliated Yeltsin, rejecting his appeal for a constitutional referendum and squashing his ability to rule by presidential decree. But Yeltsin seems to have a two-pronged strategy, at home and with the West, for staying in power, and he's making quiet but surprising progress on both fronts.

Just a few days after the diehards were fulminating in Moscow, for example, a major milestone was passed in the move to capitalism. Massive sell-offs began on Mar. 15 for shares of ZIL, the giant Moscow conglomerate that makes trucks, refrigerators, and the limousines once favored by Communist Party bosses. The principal investors are private citizens from 100 Russian cities. The lesson of the ZIL sell-off is clear. Despite the political stalemate at the top, economic changes are still percolating from the bottom up in many Russian cities and towns. Empowering and enriching average citizens remains Yeltsin's best chance to hold out.

ON THE BLOCK. The Parliament's conservatives, for example, have so far failed to thwart the sweeping sell-off of state assets. In the past year, more than 53,000 stores and enterprises were turned over to private owners. Now, hundreds of large and mid-size factories are on the block. Current Western estimates show as much as 40% of the population now working full- or part-time in the private sector. Declares one new owner of a former state store in Nizhniy Novgorod: "The conservatives won't come to power. There are too many people already working in private business."

If that turns out to be true, it's good news for Yeltsin. But time is against him. Inflation rates of 35% a month have eroded much of his popularity. And he faces another major test in June, at the next Congress. There, he will face an even more organized effort by conservatives to impeach him or call for immediate presidential and parliamentary elections.

But even if the parliament votes no confidence in privatization minister Anatoly B. Chubais, the government is pushing ahead with state-asset sales. The plan is to continue sell-offs at the rapid pace of about 8,000 stores and services every month. By April, the government will have completed 700 auctions for shares of large enterprises. By yearend, the government hopes to have sold off about 150,000 state enterprises, or roughly 25% of state property.

Although political tensions are rising in many Russian regions, some areas offer strong support for Yelstin's privatization program. That's especially true in provinces around the cities of Perm, Volgograd, and Vladimir. In Nizhniy Novgorod, a stronghold of the defense industry, most stores have already been sold off. Says Boris Nemtsov, the region's radical governor: "During the next half-year, we must privatize everything."

SAFETY NET. The other essential element of Yeltsin's survival strategy is breaking the logjam on Western assistance. At a Hong Kong meeting of Group of Seven financial officials on Mar. 13, Russian Vice-Premier Boris Fyodorov outlined a new proposal for about $26 billion in Western assistance, a well-placed source says. It includes $5 billion for economic stabilization and a social safety net for needy Russians and $7 billion to help the farm and energy sectors. Besides this, Fyodorov requested a $1 billion small-business fund and a total of $13 billion for debt-service relief, International Monetary Fund loans, and a ruble-stabilization fund. One goal is to stop the Russian central bank from stirring hyperinflation by issuing huge credits to industries. The package would supercede an earlier $24 billion program promised by the G-7 last year.

Now, the U.S. and other G-7 members are poised to hold a flurry of technical meetings to ready such a plan. One deadline could be the Apr. 4 summit between President Clinton and Yeltsin in Vancouver. Even if the aid plan doesn't coalesce by then, Yeltsin is almost sure to return from the summit with new bilateral aid projects. "The President is seized with this issue," says a senior U.S. Administration official.

The key question is whether progress on grass-roots capitalism and Western aid will build enough support for Yeltsin to push through changes in Russia's political structure. Yeltsin wants a strong, American-style executive presidency, but hard-liners blocked him at the Congress. Now, Yeltsin is expected to try again on Apr. 25 through a plebiscite on how much power the President should have and whether citizens should have the right to own land. Yeltsin expects backing on both. With help from privatization and the West, he just might get it.

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