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Why Yeltsin May Prevail


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WHY YELTSIN MAY PREVAIL

For the former boxer, it was time to fight back. For months, Russian President Boris Yeltsin's opponents in the parliament pummeled him by obstructing key reforms such as land privatization. On Mar. 12, they struck a crowning blow and slashed his presidential powers. So on Mar. 20, Yeltsin went on the attack. He called a vote of confidence on his presidency for Apr. 25--and declared in a "special" rule that parliamentary vetoes of his decrees should not have force. Fumed parliament speaker and Yeltsin archrival Ruslan Khasbulatov: "It's a coup d'etat."

Not quite, Comrade Khasbulatov. Yeltsin's appeal to the nation marks his riskiest--and most crucial--bid yet to save economic and political reforms in Russia. Once again risking his political life, he is confronting the group of hard-line communists, nationalists, and disillusioned democrats who have gradually regained influence through the Congress of People's Deputies. At stake is Russia's stability as a state and its new cooperation with the West. "If no resolute measures are taken...the country will be plunged into anarchy," Yeltsin grimly warned millions of television viewers.

REAL MONEY? If Yeltsin prevails, he could advance Russia's historic moves toward democracy and capitalism. He plans ambitious steps to stem the collapse of Russia's economy, such as preventing hyperinflation, transferring state-owned land to private hands, and aiding Russia's struggling entrepreneurs. To do that, Yeltsin will ask voters to approve a new constitution that will create a U.S.-style presidency with a bicameral parliament. Says First Deputy Prime Minister Vladimir Shumeiko: "We need a strong presidential republic to carry out radical economic reform."

The Kremlin showdown may also persuade the West to finally back its praise for Russian reform with real money. Emergency aid packages now under discussion involve as much as $25 billion in debt relief, unemployment help, and credits for fledgling small businesses. Facing his first major foreign policy challenge (page 3716), President Bill Clinton is leading the charge for more, and more visible, Western aid. "What's critical," says Ronald Freeman, first vice-president ef the European Bank for Reconstruction & Development, "is that the Russian in the street sees something happening."

Yeltsin, of course, could also lose his bet --and lose big. The stage is set for a Congress of People's Deputies vote on his impeachment, possibly on Mar. 26. The move follows a court decision that Yeltsin's "special" rule is unconstitutional. What happens if Yeltsin goes? Reforms would likely muddle along under a new leader, such as Vice-President Alexandr Rutskoi, who has already split with Yeltsin. Darker scenarios are that Russia might split up into independent regional governments or that a civil war could break out among nuclear-armed factions.

But step onto the streets of Moscow or St. Petersburg, and there's little sense of impending doom. "People aren't thinking about politics now. They think about how to clothe themselves, how to feed their children," says Andrei Fedotov, owner of a busy cigarette and liquor kiosk in central Moscow. Nor do Western business executives appear ruffled. Coca-Cola Co. is moving ahead with plans to build a new $50 million bottling plant employing 200 people in St. Petersburg. The Pratt & Whitney unit of United Technologies Corp. sees no delay in the scheduled first flight Mar. 30 of a new jetliner it is building with Russian planemaker Ilyushin. And while uncertainty will delay Amoco Corp.'s talks on oil projects in Sakhalin and Siberia, it won't kill them. Says Martin G. Pranga, manager of international business at Amoco: "We don't think somebody is going to come to power that will turn it around 180 degrees."

One way Yeltsin wants to break the political deadlock and get reform in gear is by flushing out foot-draggers. One target appears to be Viktor Geraschenko. After becoming chairman of the Russian Central Bank in July, Geraschenko undertook policies that led to near-hyperinflation, with the creation of trillions of rubles in credits to keep faltering state industries running. Since the Central Bank comes under parliament's jurisdiction, Yeltsin has been unable to dump Geraschenko.

But now that Yeltsin has broken with parliament, the drums are beating for Geraschenko's ouster. Vice-Premier Boris Fyodorov, who oversees finance, has publicly called for Geraschenko's head. In his place, Fyodorov wants a tough monetarist--someone who will triple interest rates, impose tight credit limits on industry, and sell hard currency on the open market to help stabilize the ruble. Should Russia get a grip on inflation, it would help clear the way for a $6 billion ruble-stabilization fund that was approved, but not yet released, by the Group of Seven industrialized nations last year.

LAND REFORM. Another big item is land ownership. Some 95% of property in Russia is owned by the state, and bureaucrats are resisting land reform. "The feudal lords of industry and agriculture hate to give up their power while the serfs--or rather the workers and peasants--are divided about the desirability of private responsibility," says Michael St urmer, director of the Ebenausen Institute, a think tank near Munich. And while some Russians, such as the country's 220,000 new private farmers, have managed to get tracts for themselves, antiquated land laws still hamper them. Private farmers often can't buy but must must rent their land, so they've no collateral for loans to buy needed equipment, seeds, or fertilizer.

Yeltsin has his government working on a new law on land that will be issued before the Apr. 25 confidence vote. Besides setting down ownership rights for Russians and foreigners, it would create a process to transfer property from unprofitable state-owned farms to individuals. To speed up the process, the government may issue special privatization vouchers. That approach has already successfully sped up sell-offs in other sectors. In the last year, more than 53,000 shops and enterprises have been privatized and 100,000 more are expected by yearend. "Privatization has developed a momentum of its own," says Maxim Boyko, an adviser to the state committee on privatization.

Shrewdly, Yeltsin is using the land question to lure voters for Apr. 25, since Russian pollsters say that 70% of the population supports private land ownership. But even without that sweetener, Yeltsin has a strong chance of winning, says sociologist Yuri Levada of the All-Russian Center for Public Opinion Research. After his TV address, Yeltsin's popularity rating jumped from 30% to 50%, while Rutskoi's is a dismal 9%. According to the center's most recent poll, 61% said they would back Yeltsin in the confidence vote. If that turns out to be true, the former pugilist already may be punching his way back.THREE WAYS

THE CRISIS IN

MOSCOW COULD

PLAY OUT

THE BEST CASE

The Congress of People's Deputies either declines or fails to impeach Yeltsin,

who then wins a broad popular mandate in the Apr. 25 election. Later, a modern

Constitution is approved, and new elections are held. Reforms are passed, and

the economy improves.

THE WORST CASE

Congress impeaches Yeltsin, but he ignores the decision. Both sides court

support from the military. Armed conflict breaks out and soon escalates to a

Yugoslavia-style civil war. The West must deal with millions of refugees and a

huge new security threat.

THE MUDDLE THROUGH

Yeltsin is impeached, but the military sides with him, and he wins backing in

the Apr. 25 vote. Neither Yeltsin nor the parliament prevails. Reforms

continue, but at a much slower pace. The confusion hamstrings Western

investment.

DATA: BUSINESS WEEK

Rose Brady and Deborah Stead in Moscow, with Richard A. Melcher in London, Gail E. Schares in Bonn, and David Greising in Chicago


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