ON MONDAY, MARCH 23, 1998, the irrepressible Boris Yeltsin sacked his entire government, including his prime minister, Viktor Chernomyrdin. The Russian president’s move came as a bolt from the blue. In most countries, the unexpected demise of a government would generate uncertainty and prompt the stock market to fall. In Moscow, on the contrary, the stock index rose 2 percent in joy at Chernomyrdin’s ouster. Apparently, the business community was more pleased to see him go than it was wary of the unknown.
In Washington, however, Chernomyrdin is widely thought of as a stalwart of reform. In particular, Vice President Al Gore has invested political capital in the Gore-Chernomyrdin Commission, dedicated to U.S.-Russian cooperation. The commission has held no less than nine sessions, enough to persuade Gore that the Russian premier is his good friend and that the two of them have ” accomplished a great deal, for the benefit of both our peoples.” Whatever its political merits, however, the commission has virtually nothing to show for five years of American efforts and Russian promises in the key area of oil.
This is despite Chernomyrdin’s long experience with energy issues. He was the last Soviet gas minister. No free-marketeer, he nevertheless entered the reform government headed by Yegor Gaidar in May 1992, and his arrival marked a temporary halt to serious reform. In the fall of 1992, as Russia neared hyperinflation, Chernomyrdin favored massive credit expansion and price controls. In December 1992, he replaced Gaidar as prime minister.
Upon taking this office, Chernomyrdin instantly reintroduced price controls, vowing that Russia would be not a “bazaar” but a regulated market economy. Fortunately, he was forced to rescind price controls. In 1994, he ousted two strong reformers, Yegor Gaidar and Boris Fedorov, though a third, Anatoly Chubais, remained in the government and pressed ahead with his great privatization drive. Chernomyrdin busied himself frustrating reform and divvying up the spoils among the elite. In particular, he oversaw the privatization of his old ministry, the natural-gas monopoly, Gazprom. No one knows just how many seriously under-priced stocks the state-enterprise managers kept for themselves. But as a result of Chernomyrdin’s lax fiscal policies, the ruble plummeted by 27 percent in a single day, October 11, 1994. President Yeltsin stepped in and sacked the three top economic policymakers, sparing Chernomyrdin, whose excuse was that he had been away on vacation. At this point, Chubais, his privatization project mostly complete, turned to macroeconomic stabilization, which he secured within a year. Chernomyrdin was unable to block him and remained weakened for some time.
In the second half of 1996, however, Chernomyrdin found himself virtually in control. His critics had been ousted, and President Yeltsin was taken ill. True to form, the prime minister opted for the status quo and put together a government primarily of old Soviet apparatchiks, several of them from Gazprom. By early 1997, public disgust with his do-nothing government was strong, and Yeltsin was forced to rejuvenate it by bringing in some real reformers, including Chubais and Boris Nemtsov as first deputy prime ministers. They chalked up serious accomplishments in the spring of 1997, eliminating privileges enjoyed by the big banks, regulating the state monopolies, forcing Gazprom to pay taxes, and paying all back pensions. At the height of their reform efforts, Chernomyrdin took four weeks’ vacation so as to remain personally unsullied by policies he disagreed with. Meanwhile, Russia’s new crony capitalists were growing restive as their subsidies dried up.
The high point of the Chubais-Nemtsov reforms came in July 1997 when one- quarter of the stock in the telecommunications holding company Svyazinvest was sold at an open, competitive auction. All hell broke loose as two of the most powerful of the crony capitalists, Boris Berezovsky and Vladimir Gusinsky, realized what the reformers were doing. With their three TV channels, their radio stations, and their many newspapers, Berezovsky and Gusinsky launched an all-out attack on the reformers, accusing them of — if you please — corruption, though the real struggle was over whether cronyism or the rule of law would undergird capitalism in Russia.
Predictably, Chernomyrdin sided with Berezovsky and attacked this most equitable of all the large-scale privatizations in Russia. In return, the media outlets owned by Berezovsky and Gusinsky supported Chernomyrdin for president, at a time when his popularity in the polls hovered around 3 percent. Only among the elites, whose corrupt dealings he condones, does Chernomyrdin enjoy impressive support. In October 1997, with help from the Communists in the Duma, Chernomyrdin and Berezovsky buried the draft tax code that is a precondition for the normal functioning of the economy in Russia. On the occasion of a merger involving Berezovsky’s oil company, Chernomyrdin again revealed his true colors, publicly stating that Russian companies should not compete within Russia, but only abroad. In other words, Russia should not have a market economy.
Early this year, President Yeltsin appears to have realized that three powerful men had joined forces: Chernomyrdin, Berezovsky, and Anatoly Kulikov, the hardline minister of the interior who made his name advocating war in Chechnya. Yeltsin decided to put his foot down and end a stalemate in Russia’s economic reforms that had lasted from late July 1997 till late January this year. He summoned Chubais to put the budget in order, push it through parliament, and revive the draft tax code. Most important, the reformers had had enough of Chernomyrdin. While he was widely seen as the best of the crony lot, he had done nothing to shield the reformers in the government from the Berezovsky-Gusinsky onslaught.
With the reformers again in the ascendant, Chernomyrdin tacked in their direction. Three days before his ouster, he signed a decree on the privatization of Rosneft, the last big state-owned oil company. This was the best privatization decree to date, guaranteeing an open and fair auction with foreign participation. Three bidding alliances were expected to participate. This last and best decision of Chernomyrdin’s outraged Berezovsky, who had favored insider privatization that benefited him; Berezovsky even claimed to have sought Chernomyrdin’s ouster, though in fact the initiative came from the reformers.
While Yeltsin’s sacking of the government came as a total surprise, it actually makes a lot of sense. The president stressed that the purpose of his move was to “impart more energy and efficiency to economic reforms, to give them an additional impetus, a fresh momentum.” The Russian government needed to be cleansed of Chernomyrdin and his old Communist apparatchiks and the last lingering Soviet practices. Today, Russia has enough well-trained young people to make this feasible. The original reformers are worn out, and the country is ripe for a new generation of leaders. Acting prime minister Sergei Kirienko would be a good candidate to lead the new reform efforts. Although he does not have strong political credentials, he is an outstanding representative of the new Russia, and he has largely favored competitive energy policies. Notably, it seems to have been Kirienko who convinced Chernomyrdin of the need for the competitive privatization of Rosneft, which so enraged Berezovsky. Indeed, Berezovsky’s media outlets appear to prefer Grigory Yavlinsky — a reformer but a member of the opposition, whom Berezovsky and Gusinsky think they can control — to Kirienko.
Chubais had done his part and was ready to leave after seven combative years in the Russian government. He privatized 70 percent of the Russian economy, stabilized the currency, and did a great deal to secure democracy. Even before Yeltsin’s move, in early February, Chubais had submitted his resignation. And Russia’s market economy appears secure enough to manage without him. Happily, his voluntary departure helped bring about the exit of the powerful hardliner Kulikov.
Yeltsin’s timing could hardly have been better. Russia is calm, with no crisis in sight. The next elections are nearly two years away. Parliament was in recess, and many deputies were abroad. This was the right moment for a calculated, radical shift. And its purpose is clear: to reinvigorate the government with new personnel, to clean house, and to spur social reforms. Chernomyrdin is no longer needed to conciliate the Commumsts or the crony capitalists, and he is definitely not a credible presidential candidate. Why keep him around? As so often before, the observer is left amazed by Yeltsin’s boldness and political astuteness.
As for Prime Minister Chernomyrdin, a fair summing up of his achievement would be: He was prime minister in Russia from December 1992 till March 1998. This was a time when other members of his government undertook historic economic reforms, when Chernomyrdin was too weak to stop them. A hard worker, good administrator, and eminent conciliator, he remained a prisoner of vested industrial interests, particularly the oil and gas industry.
Just one puzzle remains: What was it about Chernomyrdin that Al Gore so admired?
by Anders Aslund; Anders Aslund is a senior associate at the Carnegie Endowment for International Peace
