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RUSSIA

A March Toward the Abyss

September 06, 1998|Alex Alexiev | Alex Alexiev, an international business consultant, is a former Rand scholar in Russian studies

HUNTSVILLE, UTAH — Seven years after the dramatic events of August 1991, which led to the demise of Soviet communism and the birth of democratic Russia, the country is plunging headlong into an economic and political chaos that threatens to make the nuclear superpower ungovernable. This is no exaggeration. With its currency stripped of value, inflation running at 50% or more a month, a banking system near collapse and authorities unable to pay salaries and pensions to tens of millions, a social explosion seems only a matter of time. Yet, the political establishment is so paralyzed and polarized that a part of it hopes to profit from the coming troubles.

How did seven years of seemingly successful reforms and a functioning, if imperfect, democracy produce such a monstrosity? Truth is, trouble has been brewing for some time. Its root cause has been the incomplete, often contradictory nature of the transition from the ancien regime. A market system of sorts was established, but not the underpinning legal system that alone can guarantee its smooth operation. Coincidentally, a democracy was superimposed on a country that essentially lacked a civil society. Sectors of the economy were reformed, but much of its obsolete industrial and agricultural structures, including powerful monopolies, remained untouched.

Perhaps worst of all, President Boris N. Yeltsin's reformers, in their zeal to break the socialist economic mold through privatization, created a semicriminal economic elite that became super-rich through government giveaways, graft and corruption. These "oligarchs" grew progressively richer and more powerful as they cornered the country's banking system, commodity exports and increasingly its media. Their political clout increased correspondingly. After helping elect Yeltsin in 1996, they saw themselves, and were perceived by others, as the true masters of the country.

Cracks in this smoothly running scheme appeared in late 1997, when the Asian economic crisis began to affect Russia's fragile economy and its banking system. Plummeting world commodity prices, especially oil and metals, seriously damaged the oligarchs' interests.

Then in March, Yeltsin unexpectedly fired Prime Minister Viktor S. Chernomyrdin and appointed a government of determined reformers under Sergei V. Kiriyenko to deal with the gathering crisis. For the first time since Yeltsin's coming to power, long-overdue radical reforms were under consideration that, if successful, would have forced the oligarchs to pay taxes and loosen their stranglehold on the economy. They would have none of it.

The crisis reached its boiling point early last month. The reformers were able to secure a new loan pledge from the International Monetary Fund to stave off immediate financial threats and pay for the reform program. At the same time, the oligarch-controlled banks, highly indebted to foreign creditors and sitting on a mountain of devalued government securities, teetered on the brink of insolvency. As always, the tycoons looked to the government to bail them out of their self-created mess. Kiriyenko's government responded by devaluing the ruble, in effect, and declaring a moratorium on paying ruble-denominated debt. Why an otherwise sensible government made such disastrous and ill-timed decisions remains unclear.

In any case, the oligarchs used the shock created by the devaluation and default to get rid of the reformist government altogether and install leaders more to their liking. The most powerful and odious of the oligarchs, Boris A. Berezovsky, said to be close to Yeltsin's daughter, Tatiana, and his head of administration, Valentin Yumashev, evidently prevailed on a physically and mentally deteriorating president to fire Kiriyenko and appoint Chernomyrdin as acting prime minister. The foundation of this astounding political coup included major concessions to the Communist majority in the Duma, a scaling down of economic reform, curtailment of the president's constitutional powers and a power-sharing arrangement, all in return for a quick approval of Chernomyrdin's candidacy.

The Communists eagerly embraced the scheme but had no intention of dancing to Berezovsky's tune. Instead, they regarded the crisis as a once-in-a-lifetime opportunity to do away with Yeltsin and his reformers and take power through the back door. Contrary to the oligarchs' belief, the Communists had not become politically domesticated. Indeed, the party has grown progressively radicalized. The catalyst was the recent election of Alexander I. Lebed in Krasnoyarsk, along with the realization that the party could lose its core support if its opposition to Yeltsin was perceived as less than staunch. In Krasnoyarsk, the Communist-sympathetic electorate and the local party leadership, openly defying explicit instructions from Moscow, voted for Lebed en masse, securing his victory.

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