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  •   Pressure Builds For Shift By Yeltsin

    By David Hoffman
    Washington Post Foreign Service
    Tuesday, September 8, 1998; Page A01

    MOSCOW, Sept. 7—With the economy unraveling and protests erupting over food shortages, the lower house of the Russian parliament voted today for a second time to reject Viktor Chernomyrdin as prime minister, increasing pressure on President Boris Yeltsin to nominate someone else and end the country's political paralysis.

    At the same time, Central Bank Chairman Sergei Dubinin submitted his resignation, sowing further uncertainty as the ruble skidded against the dollar and the main Moscow currency exchange abruptly was closed once again for lack of dollars.

    The political and economic tailspin was felt not only in the capital but in the provinces, where price rises and shortages of food have spread because of panic buying and disrupted imports. Street rallies were held in Ivanovo, an old textile industry town east of Moscow, and in Snezhinsk, home of a nuclear weapons laboratory in the Ural Mountains where workers said they had not been paid for five months.

    Many politicians said the country is directionless at a time of economic crisis. "Every day of inaction brings us closer to catastrophe," warned Moscow Mayor Yuri Luzhkov, who is gaining support as a possible alternative nominee should Yeltsin decide to abandon Chernomyrdin.

    Yeltsin postponed plans for an official visit to Kazakhstan scheduled for Tuesday so as to remain in Moscow. The Kremlin had no comment on the Chernomyrdin vote. Communist Party leader Gennady Zyuganov said he will meet Yeltsin on Tuesday to discuss "new candidates."

    Boris Berezovsky, the tycoon who has pushed hard for Chernomyrdin, said he was "100 percent sure" Yeltsin would name the former prime minister again. But pressure was mounting on Yeltsin to pick someone else.

    The 450-member lower house, the State Duma, dominated by Communists and nationalists, rejected Chernomyrdin by a vote of 273 to 138, with 1 abstention and 38 not voting. Under the constitution, Yeltsin can seek a third ballot and, if Chernomyrdin is rejected a third time, can appoint the prime minister of his choice, dissolve the chamber and call parliamentary elections.

    Despite a week of lobbying by his allies, Chernomyrdin was opposed by both the centrist Yabloko bloc under Grigory Yavlinsky and the Communist Party. Chernomyrdin drew support from the ultranationalist bloc of Vladimir Zhirinovsky and Chernomyrdin's own bloc, Our Home Is Russia.

    Yeltsin's attempts to negotiate with his opponents in parliament went nowhere during a morning "round-table" session in the Kremlin. According to participants and Kremlin officials, Yeltsin suggested giving Chernomyrdin a "probation time" of six to eight months, but that was rejected. Yeltsin offered a watered-down political deal giving the parliament more say on cabinet appointments, but that did not fly either.

    During the floor debate, Yavlinsky suggested dropping Chernomyrdin for Foreign Minister Yevgeny Primakov. Regional leaders championed the cause of Luzhkov.

    Exasperated after his second defeat, Chernomyrdin fumed. "It seems, the worse the better," he said. "Someone wants empty shelves, nothing in stores, people taking to the streets."

    The debate over Chernomyrdin came against a backdrop of Russian shoppers wiping out stocks in grocery stores and pharmacies that reached a climax in recent days, prompting many comparisons with shortages in the Soviet era.

    Chernomyrdin's rejection came as Dubinin resigned, citing conflicts with the parliament. Dubinin, an academic, had been associated with the ruble "corridor" under which, from 1995 until this August, the government had managed to bring down high inflation and hold the currency relatively stable against the dollar. The ruble was devalued on Aug. 17.

    But Dubinin has been criticized as Russia's financial situation worsened. The criticism was aimed at both the bank's monetary policy and the handling of Russia's fragile banking system during the crisis.

    Andrei Illarionov, director of the Institute for Economic Analysis and a persistent critic of the Central Bank, said recently that Dubinin failed to husband foreign currency reserves when the Asian economic crisis began last year. He has criticized the bank for investing in high-yielding government bonds and spending large amounts of money on its own operations while allowing Russia's reserves to dwindle to dangerously low levels.

    Dubinin was a participant in the decision-making that led up to devaluation. Before then, the ruble was trading at 6.3 to the dollar. The Central Bank said it planned a controlled devaluation to 9.5 rubles per dollar by year's end. However, it quickly lost control of the exchange rate. Today it fell to about 20 rubles per dollar.

    Other critics have said the Central Bank mishandled bank and currency operations. For example, it repeatedly closed down the main Moscow currency exchange. Dmitry Vasilyev, chairman of the securities commission, said this had the effect of disrupting settlements and trade, aggravating the economic crisis.

    Dubinin also was criticized for a confused attempt to reassure panicky bank depositors in recent weeks. At first he promised full protection for all depositors, then announced that deposits in six major banks effectively would be transferred to the state savings bank, and returned in November at a much lower rate. Then he reversed himself on that as well. The result has been wild runs on commercial banks. Two announced attempts to take over failing banks were blocked.

    Yeltsin welcomed Dubinin's resignation, saying though his spokesman, Sergei Yastrzhembsky, that it should have been offered earlier.

    In his own defense, Dubinin said in a Sunday television interview that he had been forced this summer to channel funds to the government to keep it from going bankrupt, but that a wall of mistrust had grown up between the bank and government. Then "in August, the next dangerous phase began," he said. "The public lost confidence in the national currency."

    Russia's monetary policy remains unclear, although there is a political consensus for a major expansion of the money supply to pay overdue pensions and wages, regardless of the inflation risks. Some Western economists say the expansion has already begun as the Central Bank is pumping credits to favored commercial banks.

    The resignation also comes as some in Russia are examining the possibility of establishing a currency board under which the ruble would be pegged firmly to the dollar or other foreign currencies. Under the plan, control of the money supply would be taken out of the hands of the Central Bank. Sergei Aleksashenko, who was designated the acting head of the Central Bank on Dubinin's departure, told the Interfax news agency today that he opposes the idea, saying it would destroy "the monetary power of the Central Bank."

    "It is possible to raze everything to the ground," he said, "including the Central Bank, but this will not resolve any of our problems."

    © Copyright 1998 The Washington Post Company

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