CHAPTER SIXTEEN
Endgame
The effective length of Yeltsin’s second presidential term was less than half of the first. Constitutionally limited to four years, it got off to a late start owing to the heart operation and was foreshortened by early retirement in December of 1999. Indeed, the nomination of Vladimir Putin as prime minister and heir apparent put him partway out the door that August. If the front half of term two was about taking power back, the back half was about letting go of power and, in so doing, not rubbing out everything he had tried to achieve. His behavior at the time, ridiculed by some contemporaries as impulsive and unserious, accomplished his short-term goals, against the odds. The long-term effects are still being acted out and debated today.
The Yeltsin endgame began in earnest with his government. He first gave thought to revamping it in November–December 1997. The brunt of his disaffection was borne by the man who had been his prime minister since 1992. While Viktor Chernomyrdin and his ever-changing roster of ministers had rendered faithful service, they, in Yeltsin’s estimation, were not up to the task of bringing about sustainable development in a marketized economy. The strength of Chernomyrdin, Yeltsin set down in Presidential Marathon, was his “exceptional capacity for compromises. . . . But that was also the problem. The main compromise Chernomyrdin ‘sat on’ all these years was . . . between market relations and the Soviet directors’ corps,” a bargain from which Russia had to move on. Yeltsin, moreover, was looking ahead to the making of the next president, a prize Chernomyrdin had lately grown hopeful of attaining. Yeltsin was sure that his love for “the commonplaces of cautious administration” and the masses’ weariness of “the same old faces” in politics would make him unelectable when the next presidential campaign rolled around. Chernomyrdin would have to make way for someone younger, more resolute, and with “another view of the world” in his head.1
Testimony on all sides makes it plain how greatly Yeltsin at the conclusion of his career relied on personnel renewal within the executive branch as the key to presidential leadership. In the role of political impresario, he was to gloat in 2000, he and no one else had populated Russia’s blank public stage. “By giving a politician the chance to occupy the premier’s or a vice premier’s seat, I instantly made him famous, his actions significant, and his personage notable.” Yeltsin acknowledged that this role flourished out of necessity: “I sometimes think I had simply no other way to bring new people into politics,” and through them new ideas and approaches.2
There was no other way because Yeltsin’s energies were depleted and his charisma blotted, and because of his past choices. He had refused to create a political party that would furnish a Yeltsinist organizational framework for those seeking office and a Yeltsinist conceptual framework for those holding it. A last gasp at drawing him into partisanship occurred right after the 1996 election. Georgii Satarov sent him a memorandum in July about a new party of power that he would head and that would subsume Chernomyrdin’s Our Home Is Russia and a raft of centrist and liberal organizations. It would consolidate the new political system and “the pro-system political elite.” The sketch interested him, Yeltsin assured Satarov. But he was unfit and awaiting coronary surgery, and took no steps to implement after the operation.3
Yeltsin met with contenders for prime minister under “various pretexts,” on the lookout for a technocrat free of “debts and obligations to his party or his section of the political elite.” This ruled out party heads and power brokers, national and subnational. The search narrowed to three members of Chernomyrdin’s latest cabinet, another person who held economic positions earlier in the decade, the director of the central bank, and a former commander of Russian border troops.4 As lists go, it was an obscure one, and only one on it (the former minister, Boris Fëdorov) had ever run for election or worked in a party. Two ministers were excluded for closeness to the sectors they controlled; Fëdorov was “too politicized and ambitious”; the banker, Sergei Dubinin, and the military officer, Andrei Nikolayev, were quick-tempered and unsteady.5 Yeltsin’s later conduct makes the otherwise unmemorable Nikolayev noteworthy. Yeltsin knew and respected him in Sverdlovsk and was full of praise for him in the border-guards job, which he left in December 1997 after squabbles with other security officials. That the general was a candidate at all shows that the soldierly style was exercising an appeal to Yeltsin well before the rise of Putin.6
By a process of elimination, Yeltsin went to the sixth name on his list. Sergei Kiriyenko, a protégé of Boris Nemtsov in Nizhnii Novgorod, had worked in the Komsomol, commercial banking, and oil refining; he relocated to Moscow with Nemtsov in the spring of 1997 and made energy minister in November. He was by far the youngest on the short list, at age thirty-five, and had a mild manner and a decidedly boyish appearance. Yeltsin valued his business experience and restrained articulateness, yet conceded there was “something of the honor-roll graduate student” to him.7 The two first met on the 1994 layover in Nizhnii at which Yeltsin spoke improvidently of Nemtsov as his successor. In early March 1998, Kiriyenko handed Yeltsin a clipped report about streamlining the Russian coal industry; Yeltsin liked it and Kiriyenko’s “youthful maximalism” on market principles.8 More than Chubais and Nemtsov in 1997, Kiriyenko was Yeltsin’s second-term Yegor Gaidar, the well-connected wunderkind who would accelerate change as the agent of an impatient president.9
Yeltsin precluded doing in 1998 what he suspected he should have done in 1997: put the seasoned young reformers around Chubais in unqualified control of the government. Svyazinvest had cheapened the stock of Chubais and Nemtsov, who had far more hands-on experience of government and elite folkways than Kiriyenko. Practiced junior members of the team, untouched by the incident, were available for promotion. Yeltsin knew whom he wanted, and it was Kiriyenko. First thing on March 23, 1998, he informed Chernomyrdin. Kiriyenko took on the nomination and Yeltsin signed the papers making him acting prime minister. Yeltsin, according to Kiriyenko, shed a tear when he briefed him on the exchange with Chernomyrdin.10
The nominee had to be confirmed by an absolute majority of 226 votes in the State Duma. The deputies were of no mind to oblige. The constitution’s Article 111 stated that if they rejected the president three times in the two weeks allowed, he was to disband the house and call a parliamentary election. Were there to be an initial turndown, it did not lay down whether he was free to resubmit the name of his preferred candidate. After Kiriyenko took only 143 votes on April 10, Yeltsin unflinchingly asserted that right and renominated him; in the second ballot, on April 17, Kiriyenko sank to 115 votes. Yeltsin pulled out all the stops on a third try. He hosted a roundtable for politicians in Catherine’s Hall of Kremlin Building No. 1, importuned leaders of the Duma factions, and got the Federation Council to sanction Kiriyenko. Vladimir Zhirinovskii of the nationalistic LDPR, with the third largest bloc of Duma votes, swung them to Yeltsin and Kiriyenko—to ensure political stability, he said (“A bad government is better than no government”), and for pecuniary benefit, it was widely believed.11 Nikolai Ryzhkov, Yeltsin’s old foe and now the kingpin of a small socialistic caucus, helped by rationalizing a positive vote as a strike “against the destruction of the Duma.” The Duma speaker, Gennadii Seleznëv of the KPRF, came out solidly in the affirmative and warned that dissolving the Duma for the first time ever would endanger the unity of Russia. “The president,” he said for good measure, “is tightening the screws on us and we have no alternative.”12 Seleznëv got the chamber to conduct the third ballot anonymously, enabling many communists and others to elude party discipline. Unpopular though Yeltsin was, he was able to play on fears by rank-and-file deputies that in a new election they might not secure nominations and seats, would have to campaign without their Duma office base, and would be blamed for economic side effects. As icing on the cake, Yeltsin went on television to say he had asked Pavel Borodin of the Presidential Business Department “to tend to the deputies’ problems” if they took a “constructive” approa
ch to the confirmation vote—the problems being those of housing and perks. “One can only guess whether this should have been understood as responding to their material needs or as classic bribery.”13
The Duma knuckled under on April 24. When the division bells rang, 251 deputies voted to confirm Kiriyenko as head of government.14 Yeltsin showed him around his new office in the Russian White House. For them both, it was all downhill from here.
Yeltsin could not resist the temptation to make a few balancing ministerial changes, notably the removal of Chubais and of Anatolii Kulikov, the relatively conservative interior minister, and to insist that his ex-favorite Boris Nemtsov be retained as a deputy prime minister. That done, he gave Kiriyenko as much latitude in selecting cabinet members and defining program initiatives as Gaidar and Gennadii Burbulis had enjoyed in 1991–92. Passionately wanting him to succeed, Yeltsin conferred with Kiriyenko in the Kremlin or at Gorki-9 two or three days a week until his summer break.15 Vigorous young ministers took over finance (Mikhail Zadornov),16 economic coordination (Viktor Khristenko), tax collection (Boris Fëdorov), and labor (Oksana Dmitriyeva). Draft bills on economic liberalization were submitted to the Duma. In May Kiriyenko and Yeltsin’s chief of staff, Valentin Yumashev, seconded by Tatyana Dyachenko, asked Yeltsin to dismiss Pavel Borodin and get to the bottom of allegations of corruption in the Kremlin business directorate, and they had him almost sold on the idea. After a heart-to-heart with Borodin, the president ordered him to institute competitive bidding for future contracts but kept him in the job.17
If Kiriyenko had some of the properties of the right man to reform the reforms, the timing was wrong and it would be all he could do to tranquilize a volatile situation. The deus ex machina was a downturn in the overheated economies of southeast and east Asia, hit in 1997 by falling commodity prices and runs on the local currencies. Contagion from the “Asian flu” gave Russia financial sniffles in October–November. Government intervention to shore up the ruble did not restore full confidence, as is demonstrated by the slide in the RTS stock index from its high of 572 points on October 6 to 397 points on December 31.18 Economic uncertainty played into Yeltsin’s agonizing over Chernomyrdin: He was unhappy with the prime minister’s inability to answer pointed questions about finances, and conveyed this to insiders.19 By March, observers were beginning to see an Asianstyle crisis as in the making. In the second week of May, as the world price of crude oil fell to $12 a barrel (it had been $26 in January 1997) and the RTS average careened toward 200 points, the press predicted an imminent devaluation of the ruble. Yeltsin, with Kiriyenko and Dubinin, could have acted then to give in to the inevitable and cushion the effects. But the new cabinet was “terrified” by the prospect and of its political consequences.20 When no one acted, speculation reached a fever pitch. Defense of the ruble cost an estimated $4 billion per month in reserves that summer, bringing hard-currency and gold reserves down to less than $15 billion.
The pain would have been less were it not for a domestic background factor—the fiscal overexposure of the government. Yeltsin stated later that he had shone a flashlight on the problem at a meeting of the Council of Ministers in December 1997. “I said [to Chernomyrdin and the ministers], ‘You always explain everything in terms of the world financial crisis. Sure, the financial hurricane has not spared Russia and it did not originate in Moscow. But there is another aspect to the problem: the deplorable state of the Russian budget. And here you have no one to blame but yourselves.’”21 What Yeltsin did not say was that the red ink in the budget was something for which he himself had no small part of the responsibility.
The condition was chronic and dated back to the macroeconomic stabilization program of 1992 to 1995. Soviet-era social guarantees having been liquidated, Yeltsin did not want to antagonize the population further by cutting back on social allowances and services, or to alienate public-sector workers by doing away with their jobs or not paying their wages. As Aleksandr Livshits, his assistant for economics, put it, the president “felt there were limits to ordinary people’s patience” and “was afraid of a social explosion” if living standards deteriorated without relief.22 An attempt in May 1997 to sequester unfunded items in the federal budget was dropped after several months, and then revived without lasting success in 1998. On the revenue side, the weak post-communist state struggled to collect taxes, often accepting nonpayment, promissory notes, or goods in kind in lieu of money. Anxious not to drive firms into layoffs or bankruptcy, it instructed Gazprom and the electric grid to follow its lead and did not force them to honor their debts to the government. The 1996 election campaign engendered a new round of promises for bailouts and special projects and more unwillingness to squeeze out additional revenues. Post-election endeavors to increase tax yields cut little ice, as we saw in Chapter 15. A federal deficit that was reduced from 10 percent of GDP in 1994 to 5 percent in 1995 was back to 8 percent in 1997, only 1 percent less than tax revenues in total—meaning that the government of Russia was spending almost two rubles for every one it took in. As a noninflationary tool to finance the deficit, it relied on treasury bills known as GKOs (the acronym for State Short-Term Obligations), distinguished by their ultrahigh yields and fast maturity. The GKOs were purchased by domestic banks and by nonresident portfolio investors, who in 1996 acquired the right to convert their earnings to hard currency at will. The public borrowing required to float the GKOs produced a major overvaluation of the currency.23
Soft oil prices, capital managers’ aversion to country risk, fear of a global recession, and the ensuing hike in interest rates made the mountain of state debt untenable. In Ponzi fashion, the Ministry of Finance begat ever more GKOs to cover the shortfall and boosted the annual yield from 18 percent in July 1997 to 65 percent in June 1998 and 170 percent in mid-August. Russia went further out on a limb by issuing several billion dollars in Eurobonds and making cash loans that would have to be repaid in dollars. Interest payments on the debt, which were 17 percent of the budget in January 1998, gobbled up 34 percent by July of 1998.24 The RTS stock index went down in tandem to 135 points in early July, on its way to a low of 38 points on October 2, 1998—seven cents on the dollar for those who bought in at the high one year before.
Yeltsin’s infant government had limited options. Kiriyenko got Boris Nemtsov to meet with coal miners who were on strike over unpaid wages and blockading the Trans-Siberian Railroad; the pledge to redress their grievances added to the government’s obligations. Dubinin and the Central Bank of Russia pressed what monetary buttons they had. With Anatolii Chubais as head negotiator, Russia talked with the IMF about disbursement of a tranche from earlier loans and about new credits. The $5 billion of a $14.8 billion rescue package to make it to Moscow in August disappeared without a trace.25 Boris Fëdorov proposed a cut in tax rates tied to a crackdown on tax debtors, targeting the 1,000 wealthiest Russians. In July, as an olive branch to the communists in parliament, Yeltsin appointed Yurii Maslyukov, a defense industrialist, former Politburo member, and KPRF lawmaker, as minister of industry and trade. But efforts to get the Duma to pass an austerity program fell flat. Refusing to trim spending, reduce subsidies, or introduce a sales tax and other new charges, legislators adjourned for a summer recess.
Yeltsin issued pronouncement after pronouncement about budget discipline, but did not swear off using the power of the purse, albeit a nearly empty purse, to please constituents. In late June he passed a day in Kostroma, on the Volga River two provinces northeast of Moscow, with local managers, students, and peasants:
Yeltsin was in good cheer and a curious mood. At the Karayevo State Breeding Farm—the enterprise is famous for its thoroughbred cows and has forty Heroes of Socialist Labor on its staff—the president tortured the director with questions about forage, calving, and cleaning out manure. At a certain moment, Yeltsin even got angry: “You are not answering me concretely! What is it, do you think the president understands something about politics but nothing about cows?” Then Yeltsin fell head ove
r heels for the Russian flax [grown and processed in the region]. After comely young Kostroma women showed him the newest fashions at a linen mill, the president took out his fountain pen and, right there on a wall poster, labeled “Government Support for Russian Flax,” he wrote, “There is going to be a decree! Yeltsin.”26
As part of the consultations, Yeltsin had his fourth meeting with the oligarchs, ten of them, on June 2. Bankers Mikhail Fridman, Vladimir Gusinskii, Mikhail Khodorkovskii, Vladimir Potanin, and Aleksandr Smolenskii had been at previous gatherings; Vitalii Malkin of the Russian Credit Bank joined them; and four industrialists were added—Chubais, wearing his hat as head of electricity wholesaler YeES (the position he was given when he left the cabinet in March), Vagit Alekperov of Lukoil, Vladimir Bogdanov of the Surgutneftegaz oil and gas company, and Rem Vyakhirev of Gazprom. Kiriyenko sat in, unlike Chernomyrdin, who had not been present at the meetings in 1995, 1996, and 1997. Yeltsin described the state of affairs as ominous and enjoined the moguls to pay their taxes, keep their money in Russia, and keep faith in his government. He asked what they most needed from him; Fridman replied that it was stability. Perhaps, Yeltsin volunteered, I will make an announcement that Kiriyenko will chair the Council of Ministers until 2000.27 No such announcement came forth, which was not lost on Kiriyenko. The prime minister met separately on June 16 and 18 with most of the June 2 participants, and his spokesmen said leading capitalists and state officials would form a joint Council for Mutual Economic Assistance. But Yeltsin did not express an opinion. The attempt to give business-government cooperation a formal cast died on the drawing board.
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