Kremlin Strips Reformer of Finance PostBy David Hoffman
Washington Post Foreign Service
Thursday, November 20 1997; Page A27
Russia's embattled economic reformer, First Deputy Prime Minister Anatoly Chubais, was taken down another notch today as the Kremlin decided to strip him of one of his most powerful posts, minister of finance.
Chubais has held both jobs -- finance chief and first deputy prime minister -- since March when he and a former provincial governor, Boris Nemtsov, took the helm of economic reforms for President Boris Yeltsin's second term. What was then described as the most pro-reform Yeltsin team since 1992 now is in serious trouble.
Reeling from a book contract scandal that already has lost Chubais his top aides, the latest setback came as Prime Minister Viktor Chernomyrdin attempted to placate restive members of the lower house of parliament, the 450-member State Duma, which is dominated by Communists and nationalists who despise Chubais. Members voted today, 267-4, to approve a non-binding resolution calling for Chubais to be fired.
Chernomyrdin told them that Chubais and other deputy prime ministers would be stripped of their ministries because they are "too overloaded" to pay them enough attention. Nemtsov serves as minister of energy; three other deputy prime ministers also hold separate ministerial portfolios.
The decision, later confirmed by the Kremlin, was aimed squarely at Chubais, who deliberately had kept the finance portfolio for himself because it was the linchpin for such vital economic reform issues as overhaul of the tax code and the budget battle with the Duma.
Chubais has acknowledged he and four aides each received $90,000 to write a still-unpublished book on the history of Russian privatization. The payments came from a publishing house now partly owned by a bank, Uneximbank, which has been a big winner in some of the latest privatization sell-offs of government companies.
The payments have undermined the claims of Chubais and Nemtsov that they were creating "new rules" with more competition and openness in the sell-off of government assets. Chubais admitted receiving the money only after it was disclosed by a journalist whose paper is supported by another banker. The tycoons have been fighting each other, and Chubais, since a July auction of Svyazinvest, the telephone holding company, unexpectedly went to Uneximbank.
Although Chubais has arranged to have most of the book contract money donated to a foundation headed by former prime minister Yegor Gaidar, the controversy has not died down. Chubais offered his resignation last weekend, but Yeltsin refused to accept it, instead axing his immediate subordinates.
The reports about the book payments have been especially damaging to Chubais, who often has survived attacks from such outsiders as the Communists and nationalists.
This time, Chubais has confessed to friends that he brought more trouble on himself than his opponents ever did, according to a well-informed source.
Communist leaders at first threatened to stop work on the 1998 budget until Chubais was sacked. But, as in past confrontations with the Kremlin, they quickly backed down today and agreed to keep working on the fiscal plan even if Chubais remains. "Our president -- he really dislikes being pressured," said Nemtsov, "especially when this is done by Communists. So their desire to indeed trample Chubais, it is in fact only going to help [him] to continue to work. . . ."
Chubais and Nemtsov had taken the finance and energy portfolios because in the past these ministries often had become beholden to outside interests. Since Russia is collecting only about 60 percent of budgeted revenues, the Finance Ministry must dole out what money there is, frequently under enormous pressure from special interests. Likewise, the Energy Ministry was known as the purview of natural gas giant Gazprom; one of its executives previously had been the minister. Nemtsov used the post to push for reforms and more aggressive oversight of the state's 40 percent share in Russia's biggest company.
Russian economic reform has come in waves since 1992, often interspersed with periods of drift. Chubais was fired once by Yeltsin in January 1996 but came back into the fold a few months later. With Chubais weakened, political analysts say Chernomyrdin's hand again will be strengthened. The prime minister in the past has acted as a status quo, centrist caretaker, especially during the drift periods.
The setbacks for Chubais come at a time when the reform agenda seems to be stalled once again. The International Monetary Fund has withheld a $700 million installment of a loan to Russia because of poor tax collection, and a new tax code ran into fresh hurdles today in parliament.
The Duma effectively canceled a vote it had taken in July to approve the tax code on first reading and sent it back for more work, with a new vote put off until at least February.
Another hit came with the recent global stock market turmoil, forcing the government to raise interest rates, which may postpone a long-anticipated economic recovery until next year. The Russian equities market has lost 40 percent of its value in less than a month.
The key test of the reformers' much-vaunted "new rules" of open and fair competition will come later this year or early next with a string of big oil company privatizations.
Already, major international oil companies Royal Dutch Shell and British Petroleum have been lining up Russian partners to get a shot at the deals.