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Strategies & Market Trends : Investment in Russia and Eastern Europe

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To: Real Man who wrote (1052)8/10/1999 2:03:00 AM
From: CIMA  Read Replies (2) of 1301
 
Change of Priorities Drives Change of Russian Government

Summary:

Russian President Boris Yeltsin has long dealt with strategic
issues tactically, using a series of prime ministers as proxies
to make up for his political weakness and disposing of them when
they have served their purpose. Now he has elevated his
intelligence chief to prime minister to meet the challenge of
manipulating the upcoming Duma elections. This time, however,
the strategy might fail. When the time comes for Putin to go, he
may not, since the resources at his disposal to affect the
elections can as easily be used against Yeltsin as for him.
Yeltsin may just have handed the keys to the Kremlin to the
successor of the KGB.

Analysis:

On August 9, Russian President Boris Yeltsin fired Prime Minister
Sergei Stepashin and his entire cabinet, marking the fourth time
in 18 months Yeltsin has replaced his prime minister. Declaring
that he was clearing the way for the man whom he deemed best fit
to succeed him as president, Yeltsin replaced Stepashin with the
head of Russia's Federal Security Service and Security Council,
Vladimir Putin. In a televised address, Yeltsin said, "Now I have
decided to name the person who in my opinion is capable of
consolidating society." Yeltsin added, "I'm convinced [Putin]
will serve the nation well while working in this high post, and
Russians will be able to appraise Putin's human and business
qualities. I trust him. I also want everyone who goes to the
[presidential] polls in July 2000 to make their choice to trust
him, too." Putin announced that he would undoubtedly seek the
presidency, and in the meantime vowed his government would not
greatly alter the economic approach taken by his predecessor.

After shaking off their initial, short-lived surprise, the
international community rallied behind Yeltsin's decision. The
White House, several Western European nations, Ukraine, and the
IMF all said that they do not anticipate any changes in relations
with Russia following the government shakeup.

Yeltsin's opponents were also scarcely surprised, though they
were less generous with their evaluations of Yeltsin's move.
Communist Party leader Gennady Zyuganov said, "It is 100 percent
lunacy... We told you a long time ago that this government would
be sacked by September." "Nothing new has happened. It is the
death agony of the regime," added Zyuganov. State Duma Security
Head Viktor Ilyukhin stated that he does not believe Vladimir
Putin has the right qualities to rule the country and believes
that he is not the Kremlin's final candidate, but rather a first
placement. Ilyukhin claimed that Yeltsin's ruling "family" had
not been satisfied that Stepashin could or would guarantee their
interests and continued grip on power, and so were fishing about
for a more reliable candidate.

>From the other end of the political spectrum, former Deputy Prime
Minister Boris Nemtsov said in a radio interview on Ekho Moskvy,
"It's hard to explain madness. The people have grown tired of
watching an ill leader who is not capable of doing his job." And
deputy head of the Yabloko party, Sergei Ivanenko, said Russia's
"personnel reshuffle is unreasonable," because former Prime
Minister Sergei Stepashin's cabinet "did not make any serious
mistakes."

Still, Russia's Duma is scheduled to meet August 19 to debate
whether or not to confirm Putin as prime minister, and all
indications are that he will win confirmation. None of the
parties see the government shuffle or Putin as much more than a
sign of Yeltsin's weakness and panic. With Duma elections
scheduled for December 19, none want to waste time on a
protracted squabble over the nomination. And if Putin fails to
be confirmed by a simple majority of the Duma after three
attempts, Yeltsin can dissolve the Duma and force early
elections.

While most analysts are focusing on Yeltsin's apparent caprice
and desperation in dumping his government in advance of Duma
elections, Stratfor views the situation somewhat differently.
Yeltsin is a weak president, but he is neither frivolous nor
stupid. The "rotating door" in Yeltsin's government is a
calculated tool of governance. Yeltsin has such abysmally low
levels of popular and Duma support that he has developed a
strategy of surrogate governance. First, Yeltsin constantly
keeps potential opponents -- from all ends of the political
spectrum but particularly from within his own entourage --
divided and bickering amongst themselves. Then, depending on the
task at hand, he dips into the seething pool and pulls out a
prime minister appropriate for the job. He uses that prime
minister's strengths, charisma, and political chips to achieve
the task at hand, and then proceeds to dump him. This not only
serves to stunt the careers of rising stars -- as many observers
have pointed out -- but also clears the way for the person
appropriate for the next task.

A perfect example of this was the transition from Yevgeny
Primakov to Sergei Stepashin. Yeltsin used Primakov to win back
control after the failure of economic initiatives for which he
had tapped Sergei Kirienko. Primakov appealed to the
nationalists and communists, helping Yeltsin tack to the
prevailing political wind and avoid a serious challenge from the
Duma. Primakov also served well to play off of the nationalist
anti-NATO sentiment at the beginning of Operation Allied Force.
With Primakov, Yeltsin could be a strong Russian, pan-Slavic
leader. However, when Yeltsin felt he was better served selling
out Slobodan Milosevic, cutting a deal with NATO, and cashing in
at the IMF, he dumped Primakov for Stepashin.

Stepashin served well to woo back the West, but he was
inappropriate to the next task at hand -- controlling the outcome
of the Duma and presidential elections. Stepashin was unreliable
politically, having hinted at his allegiance to the All Russia
party of Mintimer Shaimiyev. Moreover, the former Interior
Ministry chief was a liability with the eruption of violence in
Dagestan -- an event that played into the hands of Yeltsin's
nationalist and communist foes. First, Stepashin was tainted by
his involvement in the previous Chechen conflict. And second, if
he was able to control one Russian ministry, it should have been
the interior ministry. Given the interior ministry's handling of
the events leading up to the current crisis, there may have been
some concern in the Kremlin as to whether Stepashin had their
best interests at heart in the North Caucasus.

So enter Putin, the man of the hour for dealing with the election
campaign. Ilyukhin was quite correct in stating that there was
little guarantee that Putin would be Yeltsin's presidential
candidate tomorrow, let alone next year. In the past few days,
Yeltsin has hinted at support for both Stepashin and Viktor
Chernomyrdin in that post, and tomorrow it could as easily be
Anatoliy Chubais -- who incidentally originally brought Putin
into the Kremlin. No, Putin is not important for his own
candidacy but for what he can do for and against Duma candidates.
Putin brings with him the support and resources of the Federal
Security Service, the successor to the KGB, and will no doubt be
called upon to wield those tools in manipulating the elections.
Then, following Yeltsin practice, sometime in January he will
likely be sacked.

But here Yeltsin's tried and true method of proxy governance may
well fail. Putin has the resources and backing to take down
Yeltsin's foes, and to take down Yeltsin as well. When it is his
time to go, he may not. Whatever his loyalty, if he draws on the
resources of the security apparatus, he is both a spokesman and
hostage for their interests. Boris Yeltsin has played with all
manner of politicians and their constituencies, but he has never
so brazenly called on the full force of the Federal Security
Service. He may have just handed the keys to the Kremlin to the
successor of the KGB.

Errata: In the August 9 Weekly Analysis, a typo gave Taiwan 250
F-15 fighter aircraft. While Taipei would undoubtedly have
appreciated this upgrade of the Taiwanese Air Force, it must be
content with the 250 F-5 fighters in its inventory.

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