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Russia: Shake-Up Unlikely To Revolutionize Economic Course

Moscow, 24 March 1998 (RFE/RL) -- President Boris Yeltsin said his decision to sack his entire government was an attempt to breathe new life into Russia's beleaguered economic reforms, not reverse their course.

Saying the government lacked what he called "dynamism and initiative," he said his new government would need to focus attention on bringing the benefits of economic reform to ordinary Russians.

Yeltsin's remarks attempted to address the concerns of the millions of Russians who have gone without pay.

The chronic backlog of unpaid wages has undercut public support for reforms and embarrassed Yeltsin, who promised to resolve the problem last year. But a new government is unlikely to eliminate the wage backlog overnight and a public day of protest against the unpaid wages is expected to go ahead on April 9.

If anything, analysts said Yeltsin's decision to appoint a new cabinet could mean political wrangling and therefore further delays to important economic reforms.

Russia's financial markets initially plunged on the news of the political shake-up, but quickly rebounded after Yeltsin promised that the cabinet overhaul was aimed at speeding up reforms.

One of those Yeltsin targeted for dismissal was Anatoly Chubais, who said he had long wanted to step down from his post as First Deputy Prime Minister. Chubais said the hand of reformers would likely be strengthened in the new government. But his departure removes the only cabinet member with the political stature to push through economic reforms.

Yeltsin named Fuel and Energy Minister Sergei Kiriyenko as acting Prime Minister. Kiriyenko, an ally of First Deputy Prime Minister Boris Nemtsov, is a strong supporter of efforts to clean up the debt-ridden energy sector and open up the oil industry to foreign investment.

Although it is uncertain whether Kiriyenko will be asked to stay on as prime minister, many investors interpreted the move as a sign that Nemtsov and other so-called reformers would remain in government.

Some analysts said the move appeared to be an attempt to cut the government's links to Russia's powerful financial groups, which are gearing up for the sale of Rosneft, the last major oil company still in state hands.

Chernomyrdin has close links with gas monopoly Gazprom, which is expected to bid for Rosneft. Chubais has been accused of taking bribes from Russia's Uneximbank, which is also eyeing Rosneft. The Rosneft auction was expected to get off the ground this week with the opening of bids, but the cabinet reshuffle has raised doubts that the sale will go ahead as planned.

Others, however, suspected business tycoon Boris Berezovsky might be behind the shake-up. Berezovsky is also a contender for Rosneft through his stake in Yuksi, Russia's largest oil producer.

Chubais denied that the country's financiers had a hand in the government's dismissal. As he put it: "they woke up in a cold sweat this morning."

Chubais also said he was likely to retain some role in Yeltsin's "team" and said he was still in the running to be chairman of the board of Russia's electricity company, Unified Energy Systems.

Although many analysts were cautiously optimistic about the ultimate outcome of the cabinet shake-up, the uncertainty and upheaval is expected to temporarily throw a wrench into the government's plans to clean up its public finances and attract investment.

The government had been expected to raise at least 1,000 million German marks (545 million dollars) through its first Eurobond of 1998 on Monday, but it postponed the issue in light of the political turmoil in Moscow. It went ahead with the bond offering Tuesday, encouraged by signs of market stabilizing.

Analysts said the change of the cabinet also could delay passage of the government's draft tax code, which had been due for a first hearing in the State Duma on April 16. The new prime minister will require Duma approval, which could take away precious time from debate on the tax code and other pieces of economic legislation.