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Russia: 'Reformers' Follow Up Yeltsin's Show Of Support

  • Floriana Fossato

Moscow, 16 February 1998 (RFE/RL) -- Following a show of support Russian President Boris Yeltsin expressed recently for their agenda, First Deputy Prime Ministers Anatoly Chubais and Boris Nemtsov took steps last week to demonstrate they are not merely symbols to calm wary investors - during a year Yeltsin intends to be "the year of economic growth for Russia."

After a Cabinet reshuffle last month, 'conservative' Prime Minister Viktor Chernomyrdin was seen as assuming much of the responsibilities of his more 'reformist' first deputies. The redistribution of power within the Cabinet caused great concern among foreign investors. They reasoned that a split government could not address boldly the troubles of Russia's financial markets, amid the aftershocks of the Asian financial turmoil.

Observers in Moscow say that this week marks the beginning of a strong counter-attack by the so called "young-reformers." Some observers, however, note that Chubais' and Nemtsov's expressions of confidence come as Chernomyrdin is on vacation.

Nemtsov, in an interview with the financial daily "Russky Telegraf" this week denied that last month's redistribution of cabinet duties had weakened his and Chubais' authority. In the interview, Nemtsov expressed confidence the government can curb Russia's big business. He said it is "dangerous" when a handful of large companies make up a large share of a country's gross domestic product (GDP).

Since last Summer, Nemtsov has repeatedly pledged the government will enforce a level playing field for all companies, regardless of their size and political and economic influence. Nemtsov pointed out that the Asian financial crisis occurred, because the countries involved had developed "oligarchic" economic systems, in which large financial-industrial groups had close ties to the government.

He said Russia risks following the same path, if measures are not taken to strengthen the position of medium-size businesses, and, he added, that industrial and financial resources should NOT be concentrated in a few large Russian corporations.

According to Nemtsov, Yeltsin "understands that Russia will never tolerate the arrogance of the super-wealthy," and, also "understands the danger of excessive closeness between business and the authorities."

Chubais, who made similar remarks while meeting businessmen this week, told a cabinet meeting yesterday that Russia's financial crisis is "virtually over," as the Government and the Central Bank have "succeeded in repulsing the attacks" on the ruble.

After the October global market crash triggered by the Asian crisis, the Russian stock market lost more than 40 percent of its value. Foreign investors were reported to have withdrawn about $4 billion from the Treasury-bill market, or GKO, in the last quarter of 1997. And, since the start of 1998, another $2, billion dollars worth of stock and bonds - half in government securities - have reported been sold. In a bid to defend the ruble at the end of January, Russia's Central Bank raised its benchmark refinancing rate to 42 percent from 28 percent.

According to Chubais, further stabilization will ensue if the government continues boosting tax, customs and privatization revenues, and cuts spending.

High yields on ruble-denominated Treasury bills have made borrowing prohibitively expensive and Chubais, in line with Yeltsin instructions last week, said lowering yields would be "essential to attract significant investment into production."

Finance Minister Mikhail Zadornov, for his part, this week said the government is determined to avoid incurring any new domestic or international borrowing until the end of March.

This was another Yeltsin order, made public last week during a meeting with Chubais, when the president appeared to be willing to help bolstering the shaky positions of Chubais and Nemtsov. Yeltsin said he would stick with Chubais and Nemtsov and would "not let anyone touch them," and ordered the government to consolidate economic policy by pushing through tax reform, strengthening shareholders' rights and ensuring open and honest privatization.

Chubais had been seen as steadily loosing Yeltsin's support, since Chubais was implicated in a scandal over a dubious advance for a yet-to-be-published book in November. Several of his key associates lost their posts in the scandal, but Yeltsin kept Chubais in government.

A further show of Chubais' new confidence was also noticeable last Tuesday, at a meeting of the government's commission on operational matters that he chairs. During the session, Chubais said he and Chernomyrdin had agreed that the commission would oversee implementation of Yeltsin's order to consolidate economic policy.

Yeltsin told Chubais to draft a new lists of state enterprises to be privatized this year and to spell out which would be open to foreign investors. The biggest state asset, in which a portion of shares will be offered, is oil giant Rosneft. The terms of the Rosneft sale are due to be announced at the end of March, and Nemtsov said two days ago that Chernomyrdin, who is due to make the final decision on the terms of the sale, has already agreed that foreign investors will be able to take part.

Following the last developments, observers in Moscow say Yeltsin appears to have listened to the call of worried investors for political action, proving that economic reform is still on track.

However, some observers note that Yeltsin, as in the past, seems to have successfully played competing Kremlin factions off each other, in order to reassert himself as the only Kremlin master. They argue that support of the 'reformers' at this moment may show that Yeltsin is concerned Chernomyrdin could take too much power, well in advance of the presidential election of the year 2000. This could make Yeltsin appear even more a lame-duck figure.

Most analysts agree that further moves are needed to calm investor fears over the future of economic reform. A more convincing sign that the reform agenda is on track will come tomorrow (Feb. 17), when Yeltsin makes his yearly address to parliament.

Other signs indicating who is winning in the on-going Kremlin corridor fights are expected to come in March, when the terms of the Rosneft auction will be made public, and a decision on the leadership of the state-controlled electricity giant Unified Energy Systems will be made. Boris Brevnov, the young top executive of UES, nearly lost his job in January in an abortive attempt to oust him, led by the Soviet-era former director of UES. The conflict for control of UES was seen last month as an attempt to dislodge Brevnov-ally Nemtsov from the center of power.