--------------986F924B4181027CFC14BBDB Wednesday August 26, 1998 The Guardian Russia: a nation drifting into chaos Boris Yeltsin is widely believed to have surrendered power as the rouble plummets, reports James Meek in Moscow Outside the government building on the Moscow river that is mockingly named the White House the rain and the rouble were falling hard yesterday in a country that is, in effect, leaderless. All over the city Russian commentators were writing President Boris Yeltsin's political obituary. So when President Bill Clinton flies into town for a singularly ill-timed visit early next week he will have no certainty about who to talk to and no notion of the direction Russia is about to take. Nor, this time, will he have any emergency loans to offer. "Boris Yeltsin still writes decrees, reads out appeals to the people, even takes part in military manoeuvres," wrote Natalya Timakova in the Commersant Daily newspaper. "But this means nothing. In effect, Russia now has no president. "If just a little while ago the Kremlin insisted, foaming at the mouth, that the president fully controlled the situation, now high-ranking bureaucrats don't even bother to lower their voices as they admit that they don't know how the administration will make it to 2000." Izvestiya's front-page headline was simpler: "Yeltsin surrenders power". Trading was twice suspended on the main exchange as the rouble fell by 10 per cent against the dollar, a collapse matched only by the "Black Tuesday" of 1994. To meet demand for dollars, the central bank had to spend more than $430 million. At this rate, its entire gold and hard currency reserves will be exhausted in little more than seven weeks. The cash machines installed by SBS-Agro Bank, a once-proud financial institution now in deep trouble, were stalling. They were being filled with roubles only once a day, and there were not enough to pay staff, whose salaries go directly into the bank. One of the country's most powerful political bosses, the mayor of Moscow, Yuri Luzhkov, offered a grim warning that sounded like an invitation for a run on the banks. "If a family of Muscovites has decided to withdraw all their money from their bank account, I cannot advise them not to do it," he said. It was the keynote comment of one of Russia's grimmest days. Bit by bit, as Moscow's gutters filled with sodden leaves in the downpours of an early autumn, the capital's fragile bourgeois attributes of financial strength were peeling away. Internet users were alerted by e-mail that henceforth all services would be priced in dollars, not roubles. American Express blocked the use of cards issued through dubious Russian banks. Visa has told Russian banks not to issue cash on each other's Visa cards. On Moscow's streets retailers scrambled to raise their prices to cover the plunging rouble. At wholesale goods markets, where sellers keep a close eye on the currency, the inflationary impact was felt immediately and more sharply than before. At the Kiev railway station market, where street vendors stock up on tobacco and sweets to sell across Moscow, most of the aluminium kiosks were shut. Merchants in those still open could be seen frantically re-pricing their stock. Their customers seemed to be milling about in a daze. "My lord!" said a middle-aged man, tapping at a box of cigarettes behind glass. "L&Ms for 43! I just bought them for 40!" Ordinary Muscovites were shielded from a steep rise in prices only by roving bands of tax police, enforcing Mr Luzhkov's attempts to halt inflation by decree. But the tax police are unable to shield the shopkeepers from the steep price increases of the imported foodstuffs on which the capital depends. The tax police called at Zhanna Davzhenko's grocery yesterday morning. "We'd like to raise prices but the tax inspectors keep scaring us. They could just shut us down," she said. "They recommended that we don't raise prices by more than 15 per cent. So now we're taking big losses." With yesterday's rouble slump, retailers will not be able to hold out much longer. The likelihood is that inflation will begin to soar just as Russians return to the city from their holidays when the school year begins next week. Formally, President Yeltsin is still running the country. Informally, it appears to be run by his prime minister designate, Viktor Chernomyrdin. There are persistent reports that he has been given extraordinary powers - that the president has verbally ceded to him operational control over the police, the army and the former KGB. Yet Mr Chernomyrdin cannot exercise his powers until he is confirmed by the lower house of parliament, the state Duma - something it is in no hurry to do. The most powerful grouping, the Communists and their allies, are demanding a wholesale change of economic direction, changes to the constitution and a dominant role in the cabinet It was at the White House that the sharpest moments of recent Russian history took place. The Yeltsin legend was born here in 1991, when he mounted a tank and denounced the August coup. On both sides of the barricades, that was the crucible in which a thousand patriotic and liberal hopes were forged. It was at the White House in 1993 that the notion of Mr Yeltsin as a democrat died, as tank crews bombarded the building and special forces stormed in to flush out the remnants of an attempt to resist the president's illegal dissolution of parliament. Now, seven years after Mr Yeltsin's triumphant defeat of Soviet reactionaries and five years after his attempt to impose liberal economic reform down the barrel of a T-72 tank, it is here that his rule is winding to a confused, inglorious end. There are no tanks this time, just increasing seclusion from the mad economy he has helped create. A lone security guard kept watch on the office of the man to whom Mr Yeltsin desperately turned to save Russia from a bottomless financial crash: Mr Chernomyrdin, who was sacked in March. The brief air of optimism over his re-appointment generated by the media yesterday morning - all three main television channels are now in effect controlled by the government and its business backers - was blown away by a disastrous day on the currency markets. As MPs in the Duma savoured their new-found leverage over a prime minister designate who has promised a coalition government, staff in the parliament building near the Kremlin were in panic. Last night an anxious Mr Chernomyrdin signed an instruction agreeing the new terms on which foreign loans would be repaid and warned the Duma there were days, rather than weeks, in which to take decisions. "It may happen that the authorities are obliged to take the harshest possible measures," he said, without elaborating. Boris Nemtsov, a minister in the previous government who resigned in anger, said yesterday that it would be impossible to say in which direction Mr Chernomyrdin plans to move until he unveils his cabinet, and he refuses to do so until he is confirmed by parliament. It sounds like a recipe for political paralysis - which is exactly what Russia does not need in the midst of a financial crisis. Mr Nemtsov said a Communist-dominated government would be worse than the existing oligarchic economy. "I once asked Tony Blair which was better, communism or oligarchic capitalism," Mr Nemtsov said. "He didn't say anything for a long time. After about five minutes he said: 'They're both shit, but at least under oligarchic capitalism there is some freedom." Yet what seems in prospect is a bizarre coalition between the Communists and the oligarchic New Russian capitalists led by Mr Chernomyrdin, in the name of saving Russia. This would be a terrible wound to Mr Yeltsin. For it is exactly what was proposed by the president's disgraced former bodyguard, Alexander Korzhakov, and the tycoon Boris Berezovsky when they attempted to have the 1996 presidential elections cancelled. It might seem a blow to Russia's liberal minority but they, too, are divided. Olga Beklamishcheva, an MP from the same liberal breeding ground of Nizhny Novgorod as Mr Nemtsov and Sergei Kiriyenko, the prime minister sacked on Sunday, said: "Maybe a popular-oligarchic alliance would be the best thing. Our Communists are also businessmen - those in the Duma, at least. "Doesn't it seem like this is paying the West back for 10 years of telling us that we needed to have a completely free market in this country? When you have a free market, you get a free crisis." © Copyright Guardian Media Group plc.1998 -- Gregory Schwartz Dept. of Political Science York University 4700 Keele St. Toronto, Ontario M3J 1P3 Canada Tel: (416) 736-5265 Fax: (416) 736-5686 Web: http://www.yorku.ca/dept/polisci --------------986F924B4181027CFC14BBDB <HTML> Wednesday August 26, 1998 <BR><I>The </I><B>Guardian</B> <BR> <BR><B><FONT SIZE=+3>Russia: a nation drifting into chaos</FONT></B> <P>Boris Yeltsin is widely believed to have surrendered power as the rouble plummets, reports James Meek in Moscow <P>Outside the government building on the Moscow river that is mockingly named the White House the rain and the rouble were <BR>falling hard yesterday in a country that is, in effect, leaderless. All over the city Russian commentators were writing President <BR>Boris Yeltsin's political obituary. <P>So when President Bill Clinton flies into town for a singularly ill-timed visit early next week he will have no certainty about who to <BR>talk to and no notion of the direction Russia is about to take. Nor, this time, will he have any emergency loans to offer. <P>"Boris Yeltsin still writes decrees, reads out appeals to the people, even takes part in military manoeuvres," wrote Natalya <BR>Timakova in the Commersant Daily newspaper. "But this means nothing. In effect, Russia now has no president. <P>"If just a little while ago the Kremlin insisted, foaming at the mouth, that the president fully controlled the situation, now <BR>high-ranking bureaucrats don't even bother to lower their voices as they admit that they don't know how the administration will <BR>make it to 2000." <P>Izvestiya's front-page headline was simpler: "Yeltsin surrenders power". <P>Trading was twice suspended on the main exchange as the rouble fell by 10 per cent against the dollar, a collapse matched only by <BR>the "Black Tuesday" of 1994. To meet demand for dollars, the central bank had to spend more than $430 million. At this rate, its <BR>entire gold and hard currency reserves will be exhausted in little more than seven weeks. <P>The cash machines installed by SBS-Agro Bank, a once-proud financial institution now in deep trouble, were stalling. They were <BR>being filled with roubles only once a day, and there were not enough to pay staff, whose salaries go directly into the bank. <P>One of the country's most powerful political bosses, the mayor of Moscow, Yuri Luzhkov, offered a grim warning that sounded <BR>like an invitation for a run on the banks. <P>"If a family of Muscovites has decided to withdraw all their money from their bank account, I cannot advise them not to do it," he <BR>said. It was the keynote comment of one of Russia's grimmest days. <P>Bit by bit, as Moscow's gutters filled with sodden leaves in the downpours of an early autumn, the capital's fragile bourgeois <BR>attributes of financial strength were peeling away. Internet users were alerted by e-mail that henceforth all services would be <BR>priced in dollars, not roubles. <P>American Express blocked the use of cards issued through dubious Russian banks. Visa has told Russian banks not to issue cash <BR>on each other's Visa cards. <P>On Moscow's streets retailers scrambled to raise their prices to cover the plunging rouble. At wholesale goods markets, where <BR>sellers keep a close eye on the currency, the inflationary impact was felt immediately and more sharply than before. <P>At the Kiev railway station market, where street vendors stock up on tobacco and sweets to sell across Moscow, most of the <BR>aluminium kiosks were shut. Merchants in those still open could be seen frantically re-pricing their stock. Their customers seemed <BR>to be milling about in a daze. <P>"My lord!" said a middle-aged man, tapping at a box of cigarettes behind glass. "L&Ms for 43! I just bought them for 40!" <P>Ordinary Muscovites were shielded from a steep rise in prices only by roving bands of tax police, enforcing Mr Luzhkov's <BR>attempts to halt inflation by decree. But the tax police are unable to shield the shopkeepers from the steep price increases of the <BR>imported foodstuffs on which the capital depends. <P>The tax police called at Zhanna Davzhenko's grocery yesterday morning. "We'd like to raise prices but the tax inspectors keep <BR>scaring us. They could just shut us down," she said. "They recommended that we don't raise prices by more than 15 per cent. So <BR>now we're taking big losses." <P>With yesterday's rouble slump, retailers will not be able to hold out much longer. The likelihood is that inflation will begin to soar <BR>just as Russians return to the city from their holidays when the school year begins next week. <P>Formally, President Yeltsin is still running the country. Informally, it appears to be run by his prime minister designate, Viktor <BR>Chernomyrdin. There are persistent reports that he has been given extraordinary powers - that the president has verbally ceded to <BR>him operational control over the police, the army and the former KGB. <P>Yet Mr Chernomyrdin cannot exercise his powers until he is confirmed by the lower house of parliament, the state Duma - <BR>something it is in no hurry to do. The most powerful grouping, the Communists and their allies, are demanding a wholesale change <BR>of economic direction, changes to the constitution and a dominant role in the cabinet <P>It was at the White House that the sharpest moments of recent Russian history took place. The Yeltsin legend was born here in <BR>1991, when he mounted a tank and denounced the August coup. On both sides of the barricades, that was the crucible in which a <BR>thousand patriotic and liberal hopes were forged. <P>It was at the White House in 1993 that the notion of Mr Yeltsin as a democrat died, as tank crews bombarded the building and <BR>special forces stormed in to flush out the remnants of an attempt to resist the president's illegal dissolution of parliament. <P>Now, seven years after Mr Yeltsin's triumphant defeat of Soviet reactionaries and five years after his attempt to impose liberal <BR>economic reform down the barrel of a T-72 tank, it is here that his rule is winding to a confused, inglorious end. There are no tanks <BR>this time, just increasing seclusion from the mad economy he has helped create. <P>A lone security guard kept watch on the office of the man to whom Mr Yeltsin desperately turned to save Russia from a <BR>bottomless financial crash: Mr Chernomyrdin, who was sacked in March. <P>The brief air of optimism over his re-appointment generated by the media yesterday morning - all three main television channels <BR>are now in effect controlled by the government and its business backers - was blown away by a disastrous day on the currency <BR>markets. <P>As MPs in the Duma savoured their new-found leverage over a prime minister designate who has promised a coalition <BR>government, staff in the parliament building near the Kremlin were in panic. <P>Last night an anxious Mr Chernomyrdin signed an instruction agreeing the new terms on which foreign loans would be repaid and <BR>warned the Duma there were days, rather than weeks, in which to take decisions. <P>"It may happen that the authorities are obliged to take the harshest possible measures," he said, without elaborating. <P>Boris Nemtsov, a minister in the previous government who resigned in anger, said yesterday that it would be impossible to say in <BR>which direction Mr Chernomyrdin plans to move until he unveils his cabinet, and he refuses to do so until he is confirmed by <BR>parliament. It sounds like a recipe for political paralysis - which is exactly what Russia does not need in the midst of a financial <BR>crisis. <P>Mr Nemtsov said a Communist-dominated government would be worse than the existing oligarchic economy. "I once asked Tony <BR>Blair which was better, communism or oligarchic capitalism," Mr Nemtsov said. "He didn't say anything for a long time. After <BR>about five minutes he said: 'They're both shit, but at least under oligarchic capitalism there is some freedom." <P>Yet what seems in prospect is a bizarre coalition between the Communists and the oligarchic New Russian capitalists led by Mr <BR>Chernomyrdin, in the name of saving Russia. <P>This would be a terrible wound to Mr Yeltsin. For it is exactly what was proposed by the president's disgraced former bodyguard, <BR>Alexander Korzhakov, and the tycoon Boris Berezovsky when they attempted to have the 1996 presidential elections cancelled. <P>It might seem a blow to Russia's liberal minority but they, too, are divided. Olga Beklamishcheva, an MP from the same liberal <BR>breeding ground of Nizhny Novgorod as Mr Nemtsov and Sergei Kiriyenko, the prime minister sacked on Sunday, said: "Maybe a <BR>popular-oligarchic alliance would be the best thing. Our Communists are also businessmen - those in the Duma, at least. <P>"Doesn't it seem like this is paying the West back for 10 years of telling us that we needed to have a completely free market in this <BR>country? When you have a free market, you get a free crisis." © Copyright Guardian Media Group plc.1998 <P>-- <BR>Gregory Schwartz <BR>Dept. of Political Science <BR>York University <BR>4700 Keele St. <BR>Toronto, Ontario <BR>M3J 1P3 <BR>Canada <P>Tel: (416) 736-5265 <BR>Fax: (416) 736-5686 <BR>Web: <A HREF="http://www.yorku.ca/dept/polisci">http://www.yorku.ca/dept/polisci</A> <BR> </HTML> --------------986F924B4181027CFC14BBDB--
