Yeltsin's Popular Protg Provides Cover for Reform

When Russian President Boris Yeltsin appointed a charismatic young governor named Boris Nemtsov to a top Cabinet post last March, he was touted as the man to kick start a stagnant national reform effort.

As head of the Nizhny Novgorod region 350 miles east of Moscow, the youthful Mr. Nemtsov had become internationally renowned as a trailblazing economic reformer through his mix of progressive politics and savvy public relations.

But Mr. Yeltsin and his aides also know a shrewd PR move or two, and Nemtsov's appointment has been among the best yet. His tenure as first deputy prime minister indeed has been marked with steps to right the economy. Yet insiders say the credit goes not to him, but to the other first deputy prime minister, Anatoly Chubais.

Easily the country's most unpopular politician because he engineered its painful transition to a market economy, Mr. Chubais now works in the shadow of the country's most popular figure to make further, and even more difficult, changes.

"Chubais needed someone to take the role of the leader of the Young Turks" of reform, says Vyacheslav Nikonov, head of the think tank Politika. "Chubais himself doesn't have the capacity."

After hurtling ahead in 1992 with such radical changes as privatization of state-held businesses and liberalization of prices, the Russian government has established a measure of economic stability. There is a sound currency, relatively low inflation, and hard-currency reserves are sizable.

But over the last three years, the Yeltsin team has done little in the way of so-called structural reforms, such as revising the tax code, commercial regulation, and customs duties. Many blame a lack of political will and an abundance of infighting within the administration. As a result, economic growth is eluding Russia, and nightmarish problems persist. For example, the punitive tax code has made tax evasion so widespread that the government, stuck with an empty budget, is months late paying employees.

"By February, the people around Yeltsin realized that the country was in a malaise, and something had to be done," says one Western diplomat. "The idea was to find a way to put Chubais in the government to energize it."

Nemtsov's name initially came up to replace Chubais as head of the presidential administration, the diplomat says. But because of Nemtsov's popularity, Yeltsin picked him instead as the public face of reform. Nemtsov claimed that he was a political "kamikaze" for taking on the role. But from his chummy televised appearances with Yeltsin, it's clear to many that Nemtsov is being groomed as a possible successor to the president.

At the time of his appointment, Nemtsov's youthful good looks and common touch made him the most popular politician in Russia - a ranking he still enjoys though his ratings have fallen, according to the Fund for Public Opinion, an independent polling organization.

But Nemtsov's wasn't the only new appointment. Yeltsin also dismissed many older ministers and promoted to their posts young bureaucrats who had worked with Chubais. Now, all the ministers in key economic positions and many of their deputies are Chubais allies, a condition critical to pushing through reforms. Prime Minister Viktor Chernomyrdin, considered an opponent to further reform, has seen his power diminished in the ensuing shakeout.

For the first time since 1993, it appeared that a group of like-minded officials was running the country. The new Cabinet paid 18 trillion rubles ($3.2 billion) in late pensions in part by clamping down on Gazprom, Russia's gigantic monopoly that owed millions of dollars in back payments to the pension fund.

And after three years of dawdling, the government introduced to the legislature a new, less onerous tax code that the latter passed in a preliminary vote. The Cabinet is also drawing up what economists call Russia's first realistic budget.

Despite the role he plays before the public, Nemtsov, a former physicist, is still learning about economics and sharpening the skills he needs to get things done in Moscow politics, says Tatyana Malyeva, an economist at the Carnegie Endowment for International Peace and an adviser to the government. Two initiatives he dreamed up - replacing the government's foreign-made cars with Russian autos and trying to deter corruption by requiring state employees to declare their income - have fallen flat.

Instead, many see the changes as Chubais's handiwork. "Chubais is much more in the zone of criticism, but I think he's doing more than Nemtsov," Ms. Malyeva says. "But people like to focus on Nemtsov, and his popularity acts as a cover for what the others are doing."

Yet for Russia to prosper, Chubais and the rest of the government will have to move beyond stop-gap measures to serious, often deeply unpopular reforms. A recent announcement that the government will gradually phase out its housing-subsidy program over several years met with a great popular outcry (and dented Nemtsov's poll standings).

Most Russians receive all sorts of handouts and tax breaks seldom based on need. For example, any family with a child under age 3 gets a monthly welfare payment. According to economist Malyeva, no one knows how many subsidies actually exist, but it's certain people won't give them up without a fight.