Yeltsin's March Massacre May Clear The Way For Reform

President Boris N. Yeltsin stormed back from a weeklong illness in signature fashion. Eager to show he was still in control, on Mar. 23 he fired the entire Russian government. One clear aim was to slap down former Prime Minister Viktor S. Chernomyrdin, who was acting as if he already had the 2000 presidential election in the bag. Chernomyrdin, wags say, was beginning to make Yeltsin look like a political corpse even though his presidency has two years to go.

But the March massacre goes far beyond personality conflicts. Yeltsin is attempting to ensure that Russia's transformation into a capitalist democracy doesn't derail. To do that he needs to make reform much more palatable to voters and to stomp out Russia's brand of crony capitalism. Yeltsin's bold move was to remove government ministers who had direct ties to Russia's oligarchical banking and energy barons. He is replacing them with a generation of young leaders who favor reform and a more competitive market. Surprisingly, some moguls agree it's the way to go.

Analysts expect Yeltsin's new team will try to implement policies that Russia needs to establish a more fair and orderly economy. They range from creating a new tax code and a workable customs system to breaking up monopolies and building a social safety net. "You'll end up with a Prime Minister less inclined by habit and personality to favor the status quo and less tied to the oligarchies," says Charles Blitzer, a former World Bank economist now at Donaldson, Lufkin & Jenrette Inc.

By firing Chernomyrdin and First Deputy Prime Minister Anatoly B. Chubais, Yeltsin struck a blow at the fat cats. As its former chairman, Chernomyrdin is closely linked to Gazprom, Russia's gas monopoly. And Chubais devised the privatization program that allowed a small group of bankers to get rich by snapping up big state companies, such as Norilsk Nickel, at giveaway prices in 1995 and 1996.

Yeltsin certainly doesn't want to feature in history books as the man who crushed communism only to replace it with an equally unfair oligarchy. But short-term electoral politics are still a big consideration. Between them, the government and the oligarchs control Russia's three national TV networks and most of the major newspapers. Over the past several months, they have given extensive and favorable coverage to Chernomyrdin as presidential front-runner. Indeed, some of the coverage was so biased that Yeltsin needed to counter the growing public perception that the oligarchy had already sewn up the election two years ahead of time.

The President made his move at a time when business leaders were fighting among themselves. Since last summer, they have battled viciously over the final juicy assets that the government has been selling off. Their growing divisions weakened their political clout and gave Yeltsin an excuse to oust their close friends in government.

Ironically, as elections approach, the oligarchs now know that it is in their best interest to support Yeltsin in his push for a Western-style market system. Most state assets have already been divvied up. That leaves less for the moguls to fight over. It also means that they must make hanging on to what they've got set as their main priority. So, instead of fighting Yeltsin, they need to help his government deal with Russia's pressing social problems. The government, for instance, has to ensure that wages and pensions are paid in full and on time. As long as that can't be guaranteed, the average Russian will remain disenchanted with reforms and tempted to back protest candidates such as the Communist Gennady Zyuganov or ex-General Alexander Lebed.

BURY THE HATCHET. To avert such a damaging outcome, argues Boris A. Berezovsky, the most politically savvy of the moguls, all those who favor reform must bury the hatchet and work together. In fact, he claims credit for persuading Yeltsin to dump Chernomyrdin as unelectable. Back in 1996, Berezovsky and his fellow oligarchs bankrolled Yeltsin in a desperate battle to beat Zyuganov in the presidential election. This time, both they and Yeltsin want to be better prepared for the Russian Duma elections in 1999, as well as for the presidency the following year.

Berezovksy and other moguls might have to step out of the political limelight. Yeltsin's appointment of Sergei V. Kirienko--a technocrat without close links to any big group--as acting prime minister is a signal that from now on they should stop meddling in the day-to-day management of the country. Russia's corporate chieftains may hate the idea. But that's the only way they will get the pro-reform president they ultimately want.

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