Publication: Prism Volume: 4 Issue: 20

By Vladimir Alekseevich Mironov

August and September saw a sharp political and financial-banking crisis in Russia. It manifested itself three ways. First was in the political sphere in the hasty dismissal of Sergei Kirienko’s government, which elicited a perplexed reaction from many politicians and businessmen. Second was in the rejection–two times–of the candidacy of Viktor Chernomyrdin as prime minister by an absolute majority of the deputies in the State Duma, and their readiness to insist on their position even if it meant the Duma’s dissolution. The third was in the difficulty in forming cabinet of Yevgeny Primakov, the new premier, accompanied by personnel scandals–the resignation of vice-premiers Vladimir Ryzhkov and Aleksandr Shokhin, leaders of the “Russia is Our Home” faction, shortly after they were appointed.

All this took place against the backdrop of the public’s sharp loss of faith in the sitting president (up to 80 percent of those polled by the All-Russian Center for the Study of Public Opinion have called for Boris Yeltsin’s voluntary resignation), changes in the armed forces’ relationship to the country’s leadership (according to some assessments, up to 95 percent of the army and navy staff can no longer be viewed as a reliable base of support for the federal authorities), and increasing pessimism on the part of Russians over whether the country can quickly overcome the crisis it has endured for many years.

In the financial sphere, the crisis expressed itself in the collapse of the banking system, the devaluation of the national currency by more than 50 percent and the reduction of the country’s gold reserves by 33 percent since the beginning of 1998.

The current crisis has led to a sharp weakening of the federal authorities’ position. After the collapse of the representative-legislative and executive vertical, the federal center’s hierarchical-administrative methods of pressure on the regional leaders have practically stopped functioning. Problems with collecting taxes for the federal budget and the growth of the state’s domestic and foreign debts have robbed the Kremlin and the White House of the possibility of “buying” the loyalty of the regional authorities. The lack of development of federal legislation–in particular, the absence of laws which would allow the federal authorities to remove regional leaders who violate federal legislation–has reduced the effectiveness of the work of prosecutors and judges. Moreover, the underdeveloped central judicial system continues to encounter open resistance from the authorities of some republics–in particular, Tatarstan and Bashkortostan. These republics do not recognize the federal constitutional law “on the judicial system of the Russian Federation.” Neither do they obey the decisions of Russia’s Supreme Court.

It is therefore not accidental that President Yeltsin, in trying to garner support for Viktor Chernomyrdin’s candidacy from the State Duma deputies and members of the Federation Council, was forced to hand over some of his presidential powers to the parliament and the Council of Ministers. The president agreed to constitutional amendments aimed at “the redistribution of authority between the federal organs of state power with the goal of widening the authority and control functions of the chambers of the Federal Assembly,” and also “widening the authority of the Russian Federation government.”

The Kremlin and the White House also accommodated the demands of the regional elites. In particular, they suggested that the heads of some regions be included in the composition of the government’s presidium but still keep their regional posts. The regional authorities were also allowed to control the activities of credit organizations in the territories under their jurisdiction. Besides that, the Center agreed to make specific concessions to certain regions. In particular, it agreed to transfer to Kemerovo Oblast the federal shares in local coal enterprises, and permitted Perm Oblast to keep not 20 percent, but 75 percent of the diamonds it extracts, for refinement in local enterprises.

During the most acute period of the current crisis, representatives of the republican-regional authorities have displayed responsibility and civic wisdom. The Federation Council, expressing their interests on the federal level, had a stabilizing and pacifying influence on the course of the situation, influencing the position of the other participants in the political struggle. Only a very few senators–for example, Saratov Governor Dmitri Ayatskov–spoke out in favor of a confrontational scenario, urging the president not to stop even at dissolving the State Duma in the name of Chernomyrdin’s nomination and the implementation of even more radical socio-economic reforms. An overwhelming majority of regional leaders–in particular, Sakhalin Governor Igor Farkhutdinov, Moscow region Governor Anatoly Tyzhlov, Moscow Mayor Yuri Luzhkov, Samara Governor Konstantin Titov–supported seeking an agreement between the two branches of government and achieving stability in society. They argued that, on the one hand, dissolving the State Duma and having early parliamentary elections would lead to a more opposition-minded lower chamber, in which deputies from the Communist Party would comprise an absolute majority. On the other hand, they argued, only a politician whose candidacy brings about agreement among the president, the Federation Council and the State Duma can pull the country out of the crisis. This is so, they explained, because the anticrisis activity is inextricably linked with a correction of existing legislation and demands the support of the parliamentarians.

At the same time, some senators–for one, Novgorod Governor Mikhail Prussak–thought that Russia was experiencing a power crisis rather than a financial one. They believed the president should initiate a constitutional assembly for changing the system of power in the country and redistributing the power of all its branches and institutions. According to them, the president should be chosen not by direct vote, but through a system of electors. Once chosen, he should coordinate with the premier the choice of candidates for the power ministries and explicitly not interfere in the appointment of minister-administrators. He should also coordinate with the parliament on the composition of the government. Finally, the system of electing the parliament should be changed: Members of the Federation Council should not be co-opted into the upper chamber of the Federal Assembly as the result of regional elections, but chosen in open elections; the State Duma should be formed only on the basis of elections to single-mandate, majoritarian districts.

The regional heads, attempting to neutralize the effects of the destructive financial crisis, have taken vastly different steps. Authorities in certain areas–the republics of Sakha-Yakutia and Chuvashia; the Belgorod, the Lipetsk, Omsk and Yaroslavl regions; the Primorsky and Krasnoyarsk Krai; the cities of Moscow and St. Petersburg–have all begun to revive administrative regulation of prices for “socially significant” goods, freezing prices in some cases at the level they were as of September 1 or even August 15. Authorities in other areas–such as Buryatia and Komi–went even further. In Buryatia, all payments on credit agreements were postponed, while all affiliates of out-of-town banks in Ulan-Ude were ordered to suspend payments to their parent institutions. The authorities in Komi froze all money operations not related to the payment of salaries, and announced plans to confiscate all securities in one way or another belonging to the state, to be applied against the debts of enterprises and subsequently sold, with the proceeds going to the republican budget.

The heads of the Kemerovo, Kirov, Sverdlovsk and a host of other regions established a monopoly on alcohol production, noting that the state alcohol trade provided up to 43 percent of the local budget’s revenues, and more than 30 percent of the federal budget’s revenues. Others–for example, Stavropol Krai and the Vologda region–“closed” their food market, depriving entrepreneurs of the possibility to sell food products outside the Krai without permission of the administration.

The heads of other regions–specifically, Kaliningrad and the Altai and Khabarovsk Krai–have not ruled out the possibility of ending the transfer of taxes to the federal budget, justifying this by the federal government’s huge debt to local budgets. Along with resolving everyday tasks, the heads of the republics and regions are striving to strengthen the quality of their financial-economic base. For example, using the federal law “On precious metals and precious stones”–which was passed in the spring of 1998 and which allows the regions to create their own gold/hard currency reserves–Tatarstan, Yakutia, the Kemerovo, Magadan, Perm, Sverdlovsk and Chitin regions, and Altai Krai, plan to create their own stockpiles of gold and precious stones. They are counting on using gold either as collateral for foreign credits or as backing for their own securities.

Secondly, in an effort to neutralize the effects of the banking system’s crash, regions in the Urals and the Far East, along with St. Petersburg, are creating their own bank unions, with the goal of supporting local interbank payments.

Thirdly, horizontal links continue to develop between subjects of the federation, which are trying to consolidate their forces in support of the main branches of the regional economy. In mid-September, Tatarstan and St. Petersburg signed an agreement on mutual cooperation, as did Moscow and the Tver Oblast. The heads of Samara and Nizhegorod Oblasts, along with St. Petersburg, agreed to coordinate their activities in order to avoid competition in the same types of production.

The events which have taken place in Russia during the last two months have led to a regrouping among the subjects of the federation. The voice of regional leaders connected to the fuel-energy complex have become less loud in the corridors of power. Governors expressing the interests of the country’s industrial elite have gained more influence. It is precisely their representatives who have received posts in the government of Yevgeny Primakov (Leningrad Oblast Governor Vladimir Titov, Sverdlovsk Oblast Governor Eduard Rossel).

More and more governors and chairmen of legislative assemblies have decided that state regulation of the economy must be strengthened. At the same time they have ruled out the possibility of a return to the command-administrative system. In other words, the financial-political crisis has strengthened the regional elite’s position in the federal power structures, while strengthening those regional leaders who back a strong state, one able to have an influence on the country’s economy.

A “coalition” of the federal authorities and regional “statists” should be able to block the development of centrifugal tendencies in Russia’s economics and politics, and become the country’s integrating “clamp.”

Vladimir Alekseevich Mironov is a Senior Fellow of the Institute of International Economic and Political Studies of the Russian Academy of Sciences in Moscow.