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New Russian Crisis, Old Team

President's decision Sunday to reappoint Chernomyrdin sets reform back again.

With near default on foreign and domestic debt and a possible collapse of the banking system, this was a time when Russia needed firm leadership.

Instead, President Boris Yeltsin has sent out a message of instability, sacking his entire government and bringing back the prime minister he dismissed five months ago.

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Analysts say the decision to reinstate Viktor Chernomyrdin, an old-style Soviet industry boss, was likely to undermine efforts by young reformers who had negotiated $22.6 billion in badly needed aid with foreign lenders to get the economy into shape.

"It's disastrous," says Al Breach, an economic analyst at the Moscow-based Russian-European Center for Economic Policy. "Chernomyrdin doesn't have the first idea how to deal with this crisis. He has never made a politically tough decision in his life."

In a somber television address on Monday, Mr. Yeltsin cited the world financial crisis and its effects on the Russian economy as the primary reason for Mr. Chernomyrdin's return. He also implicitly named him as heir apparent for elections in 2000.

"I believe it is necessary to bring in Chernomyrdin's experience and weight," Yeltsin said. "This offer is backed by another important consideration, namely, to ensure the continuity of authority in the year 2000."

But analysts note that one reason Yeltsin gave on March 23 for firing Chernomyrdin after five years as prime minister was that his Cabinet was slack on reforms. They say the ailing president, known for his erratic behavior, had taken things too far this time, throwing strong doubt on his ability to make coherent policy decisions.

"There's no sense looking for logic in anything that Yeltsin does," says Yuri Korgunyuk, a political analyst at the INDEM think tank in Moscow. "He has clearly demonstrated that he has absolutely no understanding of what is going on in the country."

The timing of Yeltsin's Sunday announcement was particularly perplexing since it came the night before the government planned to reveal the terms of a plan to restructure internal debt.

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On March 23, Yeltsin suddenly removed Chernomyrdin, replacing him with the relatively obscure Sergei Kiriyenko, who was then fuel and energy minister. Despite initial doubts about his youth and inexperience, Mr. Kiriyenko proved tenacious in trying to push through tax reforms and austerity measures that donors said were crucial.

But Yeltsin may have felt he needed a scapegoat while his government pushed through unpopular measures. Kiriyenko lost much credibility last week when the ruble was devalued after the government continually ruled out such a measure.

The Communist-dominated Duma, the lower house of parliament, meanwhile threatened to block certain points of Kiriyenko's anti-crisis program and warning about a wave of social unrest if it were adopted.

YELTSIN'S decision to sack his Cabinet prompted cautious reaction by Western governments, who are concerned about the leadership of the world's largest country (in terms of territory), which possesses a large arsenal of nuclear weapons.

Germany made soothing noises. According to spokesman Otto Hauser, Chancellor Helmut Kohl considers Chernomyrdin a leader "the government knows well and respects. [Mr. Kohl] trusts that Chernomyrdin can, in the face of the drama and seriousness of the situation in Russia, push through the necessary decisions."

United States Embassy officials in Moscow say President Clinton's summit with Yeltsin will proceed on schedule at the beginning of September. International Monetary Fund officials say they are awaiting the formation of the new government before acting.

Chernomyrdin must now be confirmed by the Duma, which turned Kiriyenko down twice before finally agreeing to his candidacy in a third-round vote in April. Chernomyrdin has enjoyed good relations with the Communists and is not expected to face too difficult a confirmation process. Major Communist deputies welcomed Chernomyrdin's nomination, although they said they needed to discuss it.

In any case, the Duma's powers are limited. It must agree to the president's choice within three rounds or face dissolution. Yeltsin says he wants the Duma to decide by Aug. 31.

While Kiriyenko is likely to be blamed for the current financial crisis, it is Chernomyrdin who bears much responsibility for Russia's economic mire, analysts say.

They note that in his previous tenure as prime minister, Chernomyrdin allowed his allies in the banking industry to engage in questionable financial maneuvering, generating huge profits for some while building up a crippling debt load.

The big winners in the current shakeup are likely to be the oligarchs, who are opposed to the tax reforms. Chernomyrdin, whose support base lies with powerful financial forces in the country, is likely to be much more lenient than his young predecessor - but his options are limited.

"Chernomyrdin will save the banks by printing money," says Vladimir Milovidov, assets manager for Atlas Capital, a Moscow investment company. "This is dangerous, as it could lead to hyperinflation. But there really is no other way."

The losers are likely to be the young reformers. Alexander Shokhin, from the Our Home is Russia Party headed by Chernomyrdin, said on Russian television that the most visible reformers were unlikely to be included on the new team.

Among the architects of reform was Deputy Prime Minister Boris Nemtsov, who tendered his resignation on Monday. He and Anatoly Chubais, the government's chief negotiator with foreign debtors, "had morally bankrupted themselves" and should leave the scene, Mr. Shokhin said. Central Bank chief Sergei Dubinin is also expected to be replaced.

Analysts are waiting to see what will be the fate of tax chief Boris Fyodorov, who was promoted to deputy prime minister on Aug. 17. Mr. Fyodorov is an independent-minded man who took on giant companies that had evaded taxes. His chief target was gas monopoly Gazprom, with which Chernomyrdin has close ties.

Out of all the confusion in Moscow today, one thing remains clear: Confidence is sorely needed in Russia's financial markets, from which foreign investors have fled. Trade on the stock exchange was at a mere trickle on Monday.

"The Russian financial markets are in a sorrier state than ever," laments Alexei Mamontov, deputy director of the Moscow Interbank Currency Exchange.

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