Prosecutors were investigating Yeltsin's cronies -- and even members of his immediate family -- for graft. Russia was reeling from an economic crisis. Voters were in an angry and surly mood.
And elections were looming.
Such was the atmosphere when Yeltsin went on television eight years ago this week, on the morning of August 9, 1999, to tell the country that he was firing his government -- for the third time in less than a year.
Yeltsin replaced his prime minister, Sergei Stepashin, with Federal Security Service (FSB) head Vladimir Putin. The president then shocked Russians -- and much of the world -- by anointing the dour and obscure former KGB officer Putin as his chosen heir.
Putin's unlikely ascent followed months of chaos, turmoil, and uncertainty as rival clans ruthlessly battled to control Russia's first post-Soviet transition of power. And the events surrounding his meteoric rise in 1999 proved decisive. It was at this time when Russia's clumsy, fleeting, halting, and tentative experiment with Western-style liberal democracy ended.
New Game, New Rules
It was also when the new rules of the game -- the ones Russia's political elite plays by today -- were established: outgoing presidents name their successors, the bureaucracy is expected to march in lockstep to support the heir to the throne, and the Kremlin will use any and all means necessary, no matter how brutal, to get its way.
The Yeltsin-Putin succession and its aftermath also provides a lesson that is haunting Russia's current political elite. Once they are embedded in the Kremlin, Russian presidents become virtually all powerful and are impossible to control -- even by the patrons who orchestrated their rise to power.
"The Russian presidency is so strong according to our archaic constitution that it is impossible to trust anybody with it," says Moscow-based political analyst Vladimir Pribylovsky. "It is dangerous. It turns a person practically into a Tsar. This is dangerous even for a short term."
Putin said at the time that he hadn't planned to run for president, but added that he was accustomed to following the president's orders -- and would obey this one as well.
"Sergei Vadimovich [Stepashin] and I are military men. The president has made a decision, and we will carry it out," Putin said.
Months later, on March 26, 2000, Russian voters would make Putin their president in an election that looked more like a coronation.
Putin is widely expected to be able to anoint any successor he so chooses. According to recent polls, a startling 40 percent of Russian voters are prepared to cast ballots for Putin's chosen candidate in next March's election -- regardless of who that person is.
A More Popular Spymaster
When the deeply unpopular Yeltsin anointed Putin his heir eight years ago, however, it looked like the longest of long shots.
In August 1999, the most popular Russian politician was a steely former spymaster who talked about cleaning up graft, punishing the corrupt, and restoring Russia's lost pride. That savior's name, however, wasn't Putin. It was Yevgeny Primakov, who served as Yeltsin's prime minister from September 1998 until he was fired in May 1999.
Primakov had teamed up with Moscow Mayor Yury Luzhkov and other regional leaders under the banner of the newly formed political party Fatherland-All Russia. The alliance appeared to have all the elements for political success -- a popular leader and a nationwide political machine that could deliver votes on election day.
The thought of a Primakov presidency terrified Yeltsin's inner circle.
Many Russians welcomed Putin's tough line on Chechnya (TASS)
Primakov made it clear that he had Yeltsin cronies like oil tycoon Boris Berezovsky and electricity monopoly chief Anatoly Chubais squarely in his crosshairs. He pledged to wage a war on economic crime, and proposed an amnesty for petty criminals to save jail space for corrupt officials and oligarchs.
"Yeltsin, Berezovsky, Chubais, didn't want to lose power -- and maybe not just power but possibly their lives or freedom -- when Primakov and Luzhkov came to power," Pribylovsky says.
In order to stop the Primakov juggernaut, Yeltsin's team frantically searched for a marketable candidate.
Several names were floated, including retired General Aleksandr Lebed, then the governor of Krasnoyarsk Krai, and Stepashin, a former interior minister who preceded Putin as prime minister.
According to media reports at the time, Yeltsin removed Stepashin in favor of Putin because Kremlin insiders didn't think he was tough -- or unscrupulous -- enough to take the extreme measures that many felt might be necessary to win and hold power.
When Yeltsin and his inner circle settled on Putin, very few political observers gave the stern former spymaster much of a chance. Pribylovsky says Yeltsin's endorsement looked like "a brick tied to Putin's legs," adding that the president's endorsement "was a minus and not a plus." Apartment Block Attacks
But the game was about to change dramatically.
Days before Putin's appointment, Chechen rebel commander Shamil Basayev invaded Daghestan. Weeks later, a series of mysterious bombings of apartment blocks in Moscow and other cities terrified the country and killed more than 300 people.
Without presenting any evidence, Russian authorities immediately blamed the bombings on Basayev's rebels and a wave of anti-Chechen hysteria gripped the country.
Putin spoke like a gangster, vowing to hunt down and kill what he called "terrorists," memorably saying, "if we catch them in the toilet, we will wipe them out in the outhouse too."
Russian forces then bombed and invaded Chechnya, which had enjoyed de facto autonomy.
"Putin adequately met society's demands and aspirations. He rode the wave. And therefore part of the elite was prepared to support him seriously."
Putin's tough-guy stance touched a nerve among Russians. His popularity soared.
Andrei Ryabov, a political analyst with the Moscow Carnegie Center, says he began to take Putin seriously as a candidate in mid-October 1999, when his popularity surpassed Primakov's.
"He adequately met society's demands and aspirations. He rode the wave. And therefore part of the elite was prepared to support him seriously," Ryabov says.
There is no doubt that Putin benefited from the wave of terror that swept Russia following the apartment bombings. But many analysts say that autumn's dramatic events were no coincidence.
David Satter, author of "Darkness at Dawn: The Rise of the Russian Criminal State," is one of those who believes that Russian authorities orchestrated the apartment bombings.
"I think that the evidence is sufficient to conclude that the FSB blew up the apartment buildings and organized a pretext for the beginning of the second Chechen war in order to create that miracle of electing somebody chosen by Yeltsin," Satter says.
With Putin wildly popular, such extreme measures will probably not be needed this time around. But nevertheless, Satter says the precedent has been set and such options are now on the table.
"We have a terrible precedent, because in the minds of everyone is the idea that power changes hands with the help of such methods," Satter says. "So it is not excluded that there could be further provocations, maybe not on that scale, in the run-up to the 2008 elections."
Putin also benefited from a barrage of nonstop propaganda promoting him on media controlled by the Kremlin and its allies.
Satter says the bureaucracy, got the message loud and clear that it was time to march in lockstep behind the new leader.
Sergei Ivanov is one of the frontrunners (Trend)
"What happened in 1999 was that those who were behind Luzhkov and Primakov, they didn't have any great affection for those two figures. They knew who they were and what they represented. But they saw power moving in that direction," Satter says.
"And as soon as they saw power moving in the other direction as a result of the apartment bombings and the second Chechen war...of course their loyalty to Luzhkov and Primakov evaporated," Satter adds.
Yeltsin sealed the deal by resigning on New Year's Eve and abdicating power to Putin.
The main legacy of 1999 is a pliant electorate and a unified obedient bureaucracy -- both of whom are waiting for Putin to give the order about whom to support.
The problem this time is that there is no potential successor that everybody in Putin's inner circle trusts -- including the two purported front-runners, First Deputy Prime Ministers Sergei Ivanov and Dmitry Medvedev.
"They [Putin's team] have problems among themselves," Pribylovsky says. "They are afraid of each other. They are seeking somebody they can trust with the throne. Everybody trusts Putin. They don't know what will happen with his successor."
They may have cause to worry. Putin kept the promise he allegedly made to Yeltsin to make sure him and his family were spared prosecution.
But soon after coming to power, Putin did turn on some of those who put him in power -- most notably Boris Berezovsky, who fled to London where he now lives in exile.
And that inherent mistrust that is now built into the system may be the most enduring and consequential legacy from that fateful year of 1999.