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Russia: Yeltsin Cuts Short Vacation For 'Urgent Business'

Moscow, 29 July 1998 (RFE/RL) -- The Kremlin press-service announced today that Russian President Boris Yeltsin cut short his holiday in Northern Russia to return to Moscow five days early.

A Kremlin spokesman initially said the move was because of rainy weather in Karelia. But Itar-Tass quoted Yeltsin later saying he made the decision because of "urgent business" linked to Russia's "complex political and economic situation." Yeltsin also said Russia is going through a transition period "on the eve of the autumn political season."

Speculations immediately arose in Moscow. Sergei Markov, head of the Moscow Institute of Political Research, told RFE/RL that "among other things, Yeltsin once again decided to scare everybody and show he is in charge."

According to Yeltsin's press service, he had spent much of his holiday indoors monitoring the Kremlin's efforts to overcome Moscow's crisis. Markov said Yeltsin "may have decided that there are processes, including tax collection or defusing dangerous developments in the Caucasus, that need more direct attention." At the week-end, Yeltsin told visiting Prime Minister Sergei Kiriyenko that "a politically difficult autumn" awaits Russia.

The International Monetary Fund on July 20 authorized the immediate release of $4.8 billion to bolster foreign exchange reserves. However, the fund withheld 800 million dollars from the disbursement. International lending agencies have promised a bailout package of $22.6 billion dollars if the government carries out promised fiscal reforms.

Despite the bailout, Russia's financial markets have slipped back into decline. On Monday, the stock market's RTS index fell by 9 percent, the largest one-day decline since June. The RTS index is down 25 percent since the IMF board approved the bailout loan.

Financial analysts say the sentiment is extremely negative. Eric Kraus, chief strategist at Regent European securities, told RFE/RL he was "wrong thinking the IMF-led bailout would give the government 4 to 5 months of breathing space. It gave 6 days. That is it."

Other analysts say investors have lost confidence in the government, despite positive steps announced by Kirienko, including plans to crack down on tax delinquents and to sell off a 5 percent stake in Gazprom. Bloomberg Business News today quotes Vladimir Sporynin, a trader at Fleming UCB in Moscow, as saying investors "need concrete steps from the government and improved tax collection" before they return.

Kraus says the IMF's delay in releasing loans has been important. But he said other international and domestic factors also influence the situation. Internationally, the continued fall of world oil prices and the Asian financial crisis also are factors.

Domestic factors include the Duma's refusal to cut spending and raise taxes; large unpaid tax bills of Gazprom and oil companies; continuing protests for backwages by miners and other workers; and Duma impeachment allegations against Yeltsin.

For the Kremlin to regain lost investor confidence, they must display enough political clout to defuse the situation.

A Duma's impeachment commission this week discussed the first of five possible charges against Yeltsin. Observers and Duma deputies agree the bid is unlikely to succeed because of complicated procedures. The Constitutional and Supreme Court must both approve the charges. Nevertheless, the procedure is exacerbating political tensions.

Meanwhile, as workers' protests continue across Russia, powerful regional politicians are becoming more active in hope of winning the presidency.

Russian media reports say supporters of Moscow Mayor Yuri Luzhkov met behind closed doors last week to form a new electoral coalition. The daily "Kommersant" says the so-called "Unity" alliance will organize nationwide protests this fall. The bloc will support Luzhkov in the next presidential election. "Kommersant" says Luzhkov, who denies any presidential ambitions, does not "advertise" his connection to the alliance. But the newspaper says the group's organizers consult Luzhkov.

Another powerful politician, Krasnoyarsk Krai Governor Aleksandr Lebed, says he may run for president if conditions deteriorate further. Earlier this year, Lebed repeatedly said he would run for president only after sorting out the economic problems of Krasnoyarsk.

In one possible scenario, Yeltsin and the government could target Russia's biggest tax delinquent, Gazprom. Early this month, Kiriyenko announced his determination to obtain Gazprom's 8 billion rubles of tax payments for June and July (some $640 million per month). Kirienko threatened to seize Gazprom's luxury assets and revoke a trust agreement signed in December under which 35 percent of the state's 41 percent stake is managed directly by Gazprom chief Rem Vyakhirev.

Kirienko said Vyakhirev agreed last December that Gazprom would fully pay its tax bills on time. For failing to abide by the deal, Vyakhirev could be replaced by an official more loyal to the state.

The July crackdown on Gazprom led to immediate protests and vociferous opposition among Duma deputies. It also was portrayed as a show of force and return to Soviet-era practices by media that are controlled by those with economic links to Gazprom. In particular, NTV Media Holding, 30 percent of which is owned by Gazprom.

Kirienko recently met with Vyakhirev to discuss the restructuring of Gazprom's previous tax debts. Gazprom says it can't pay those taxes because most of its debtors are state institutions -- military facilities, schools and hospitals that don't pay cash for gas deliveries. An agreement on restructuring the mutual debts is expected to be signed on August 3. But Kirienko has stated that the June and July taxes, along with future payments, will not be linked to the restructuring plan. Payment is expected by August 1.

Russian officials say privately that Gazprom has so far paid less than half of its June and July taxes. As the deadline approaches, the Kremlin may replace Vyakhirev -- one of Russia's most powerful "oligarchs." But one financial analyst in Moscow told RFE/RL that "only getting real cash will have a positive effect."

Meanwhile, Kraus says a company like Gazprom remains "a game of the locals." Kraus says predictions about the standoff between the Kremlin and Gazprom are, for now, "a trade of rumors."

Only Russian residents are allowed to buy Gazprom shares within Russia. Foreign investors can only buy Gazprom American depository receipts that are traded abroad.

Meanwhile, Markov says "the reaction on a show of force by the government could have positive and negative (political) effects, but the negative effects could be bigger."

Earlier this month, Yeltsin praised military leaders for their "positive" role. But at the week-end, Yeltsin replaced Federal Security Service (FSB) chief Nikolai Kovalev with the more loyal Vladimir Putin, who had served in the Soviet-era KGB and recently was appointed deputy head of the presidential administration.

Kirienko this week introduced Putin to top FSB staff and said that under the new director, the FSB's "most important" task will be to ensure Russia's economic security. The Prime Minister also praised the work of Kovalev, but said "conditions are changing (and) people are changing." Russian media speculate that Putin was chosen for political rather than professional reasons.