Yeltsin's Last Chance

'The fate of Russia is in your hands!" proclaimed banners stretching across the streets of Moscow and other Russian cities. What was surprising was how seriously voters took that message. In a critical Apr. 25 referendum, Russians rebuffed conservatives and gave President Boris N. Yeltsin a 58% vote of confidence. Defying expectations, 53% of voters also backed his tough economic program. The clear public mandate is a serious blow to the coalition of hard-line legislators blocking Yeltsin's reforms.

Now the big issue is how well and how fast Yeltsin can use his mandate. He is likely to accelerate the brisk sell-off of state factories and allow private land ownership. At the same time, he has to stop Russia's dramatic drop in industrial production and strengthen the ruble, which is now worth just one-tenth of a cent. And without touching off massive unemployment, he must get a grip on an inflation that's still roaring along at 18% a month.

Most important, Yeltsin appears set to push hard for a new post-communist constitution that would vastly change how Russia operates. It would create a presidential republic, with Yeltsin at its head, and a new bicameral legislature. Elections for the new federal assembly could come as early as this fall. The trick for Yeltsin is to win backing for the new constitution while the obstructionist Congress of People's Deputies remains the legitimate legislature. In the referendum, Yeltsin failed to win enough votes to force new legislative elections.

Voters are itching for results. Emerging from polling station No. 22, a Moscow high school, a 33-year-old construction foreman says: "I want something new. I want the reforms to move on. Yes, it's bad now. But I'm hoping it will be better." Notes Gleb Yakunin, a leader of Democratic Russia, the reform group that has backed Yeltsin since 1990: "People are saying, 'We're voting for Yeltsin,' but if he doesn't fulfill the promises he made, we won't vote for him again. It's a critical time."

ON NOTICE. Yeltsin is already asserting a newfound confidence. Within hours after his victory was announced, he put conservative critics on notice that they can't hold hostage his foreign policy, which has so far been highly cooperative with the West. Snubbing opponents who back Serbs in former Yugoslavia, Yeltsin sharply criticized militant Serbs and called for "decisive measures" to solve the conflict. His words echoed those of President Clinton, who is mulling military action. So it's not surprising that an Administration official declares himself "very pleased" about Yeltsin's victory. Now, the push is on to speed up delivery of some $43 billion in Western aid to help cement Yeltsin's position.

But foreign policy is still a sideshow compared with Yeltsin's domestic problems. To break the constitutional deadlock, Yeltsin's plan is to use his referendum victory to win support for his new constitution from representatives of the country's 88 regions and republics. Then he would call a constitutional assembly that would include parliamentary representatives to approve the document, which would be confirmed in a nationwide referendum.

The draft constitution, modeled loosely after Germany's, would give Russian citizens the right to own and freely dispose of private property for the first time. It would give Yeltsin, as head of state, the right to appoint the Prime Minister, the Cabinet, the central-bank chairman, and all top judges--with confirmation by the Federal Assembly. The assembly would include a State Duma of representatives elected according to population, and the Council of Federation, where Russia's regions would be represented. For Yeltsin, much depends on whether the regions are satisifed with their limited rights of self-management under the constitution.

Yeltsin is also expected to buttress his privatization program by forbidding localities, such as Novosibirsk, from suspending auctions at which state properties are sold off. He's also likely to issue new decrees soon on land privatization, a pet reform for which he has campaigned for years.

MAJOR SHAKEUP? The most urgent economic issues, however, are combating inflation and strengthening the ruble. Before he can act on either matter, Yeltsin must decide how to handle a major governmental rift. On one side are reformers such as Vice-Premier Boris Fyodorov who insist that the money supply must be drastically tightened to prevent hyperinflation. But other officials, such as central-bank Chairman Viktor Geraschenko, insist that halting the slide in industrial production and preventing mass unemployment are the key goals--even if it means inflation. Up until now, Yeltsin and Prime Minister Viktor Chernomyrdin have bounced back and forth between the two wings.

To decide the matter, Yeltsin's government could be in for a major shakeup, perhaps at a major meeting scheduled for Apr. 29. Radicals believe that Yeltsin must jettison reluctant reformers such as the new First Deputy Prime Minister and Economics Minister Oleg Lobov, who doggedly supports the power of industrial ministries over state property. But that may be hard for Yeltsin since Lobov is also a crony from a time when Yeltsin was communist boss of the gritty industrial city of Ekaterinburg. Worries Andrei Illarionov, a government economic adviser: "If the President does not change the government very quickly and in a very radical direction, he will lose almost everything." Yeltsin clearly is at a critical juncture. How well he performs could seal Russia's fate.

    Before it's here, it's on the Bloomberg Terminal.