Yeltsin Pushes All His Chips Into The Pot

The confrontation had been building for months. Russia's Supreme Soviet, elected under Communist rules in the last days of Mikhail Gorbachev, had been blocking just about every piece of reform legislation that Boris Yeltsin wanted. By summer's end, the fighting had taken a nasty turn, with both sides hitting the other with flimsy corruption charges. Compromise appeared impossible.

So, true to form, Yeltsin took a huge gamble. He dissolved the parliament on Sept. 21 and called for mid-December elections for a brand-new bicameral legislature--the Federal Assembly. Moreover, he said he was willing to run in presidential elections shortly afterwards. Yeltsin won quick support from President Clinton and other Western leaders. But only hours later, 147 hard-line Supreme Soviet legislators named Alexander Rutskoi, the Vice-President and Yeltsin's bitter foe, as Russia's new leader. Just as democrats had done in August, 1991, a small and mostly elderly band of die-hard Communist supporters set up makeshift barricades around the seat of Parliament--called the White House. They stood waiting for tanks that never came.

For now, it doesn't seem that the tanks will come. Yeltsin's recent courting of military leaders appears to have paid off. "Yeltsin would not have precipitated this if he were not confident of support by the military," says Michael St rmer, director of Germany's Research Institute for International Affairs.

If more enlightened lawmakers are elected in December, Yeltsin's efforts to stabilize the economy and build rule of law could could get a big boost. Inflation, now 30% a month, could be quelled by a new budget with smaller deficits. The central bank, now reporting to Yeltsin, will be under less pressure to bail out old state-owned enterprises. There could be a breakup of state monopolies in such sectors as energy and food distribution, which stymie efforts to allow market pricing. And an entirely new range of laws could promote privatization and small businesses.

Yeltsin also succeeded on Sept. 18 in bringing back Yegor T. Gaidar as First Deputy Prime Minister. Among Gaidar's priorities will be liberalizing foreign trade because, he says, "there are too many restrictions." That should be good news to foreign companies hamstrung by exorbitant royalties on exports such as oil and by heavy import duties. What's more, a new legislature could mean clear, modern rules on investment, taxation, and banking--overcoming a strain of Russian economic nationalism that was beginning to emerge. Says Mark Borghesani, a lawyer at Baker & McKenzie in Moscow: "If Yeltsin can pull this off, it will certainly be a positive development for foreign investors."

There are still big risks. Yeltsin's success depends on the continued neutrality of Russia's powerful military and security forces. Aside from his highly visible trips to army bases, Yeltsin has packed the overseeing Security Council with loyalists. But it's still possible that the military could change its mind in the case of some unexpected event, such as a spread of fighting from the civil war in Georgia into southern Russia.

Other unknowns are Russia's 89 regions. While Yeltsin says most regions support him, some local legislatures, such as those in St. Petersburg and Perm, are badly split between backing him or Rutskoi. At the same time, the regions are demanding considerable autonomy in such matters as taxation and natural-resource development. Yeltsin is trying to finesse the matter by having the Federation Council, a body made up of regional leaders, act temporarily as the replacement for the Supreme Soviet until elections can be held. But three months is a long time. In that period, says Andrei Klimov, a Perm economist and local deputy, "Yeltsin's forces can lose Russia."

WAGES OWED. Yeltsin must also appease a skeptical work force, badly hammered by inflation. Already, wildcat strikes have sprouted among medical and aviation workers. In the oil-rich Tyumen oblast of western Siberia, petroleum workers are owed $40 million in back wages. Natural-gas workers in the city of Nadem, due hundreds of millions more rubles in pay, are threatening to strike. "People here are not so politically minded," says Nikolai M. Totov, a Tyumen trade union leader. "But they will strike over back pay."

Finally, Yeltsin must overcome growing apathy among voters, who loathe Moscow politicians and see market reforms clobbering their living standards. Yeltsin has been slipping in the polls, and some surprising newcomers, such as radical economist Grigory Yavlinsky, have swept the field. For a warning, Yeltsin need only look at Poland, where Sept. 19 elections produced a big win for ex-Communists. Some Russians are thinking twice about Yeltsin. "I voted for Yeltsin," says Tatiana A. Fratkina, a Moscow doctor. "But Yeltsin didn't fulfill his promises to the people, so his popularity has declined. It's hard to support him." So Yeltsin may have broken the back of his Supreme Soviet enemies, but he still faces a long and torturous battle to prove himself to the Russian people.

      A reform-minded government would:
        -- Tighten money policies to squeeze inflation
        -- Accelerate privatization
        -- Enact new laws on taxation, foreign investment, banking, and real estate
        -- Help Russia meet foreign financial
    Before it's here, it's on the Bloomberg Terminal.