Moscow Journal: Yeltsin's Sackings Clear Stage for 2000 Election

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Boris Yeltsin's

decision to sack his entire cabinet Monday was high theater worthy of the

Bolshoi

.

The easiest thing to do was laugh off the drama, which is what the market did. On Monday, Russian equities were down 10% at one point, but rebounded to close nearly 1% higher, helped by higher oil prices.

But there are important subplots behind Yeltsin's move that will have great bearing on Russian politics and economic reforms. All eyes are now on the fall guy in the whole affair, the now-former prime minister

Viktor Chernomyrdin

. By firing Chernomyrdin, who was his most loyal minister, Yeltsin has cleared the decks for a year-2000 successor to emerge. A once certain succession story is no more.

Admittedly, the temptation to dismiss Yeltsin's barrage of pink slips is great.

After all, the drama, which could be entitled "The Madness of King Boris," contains many overworked dramatic devices and tired plot lines. How many times have we seen this one: Yeltsin perceives his economic reform plans as tarnished by bumbling or corrupt ministers; fires or sidelines the ministers with fiery rhetoric; and hires shiny, new reformers.

But this is not light comedy. It could determine who rules Russia during the next decade.

"The key thing is who becomes prime minister?" says Kingsmill Bond, head of Russian equity research for

Deutsche Morgan Grenfell

, in London.

Chernomyrdin and other ambitious cabinet members have been stripped of a political base in Yeltsin's administration

But it would be premature to write off boring, old Chernomyrdin. While he's seen as a staid but reliable shepherd of Russia's economic and political reform, Chernomyrdin's poll ratings are dismal. Yeltsin may have fired his loyal aide to free up Chernomyrdin and give the longtime minister a chance to enliven his untelegenic image.

But Chernomyrdin's chances at profiting from this melodrama hinge to a large degree on who will be named his successor. If Yeltsin picks a loyal figure with no presidential aspirations, Chernomyrdin will remain as the main contender. But Yeltsin could select an ambitious politician -- like controversial Moscow mayor

Yury Luzhkov

.

"At best, Chernomyrdin goes off to groom himself for the year 2000 presidential election," says

MC Securities'

Stephen O'Sullivan. "At worst, he's judged by Yeltsin to be a bad continuity candidate, what

John Major

was to

Margaret Thatcher

."

But all bids for power will have to get past tycoon

Boris Berezovsky

, who, after Monday's events, now seems to be strongly back in favor with Yeltsin. The billionaire industrialist, playing Rasputin to the presidential family (he is said to handle the Yeltsin family's personal finances), was widely rumored to have forced Yeltsin's hand on firing Chernomyrdin.

Why? Berezovsky is said to be mad after he lost out on a chance to bid for one of Russia's last remaining privatization assets,

Rosneft

, the government's prized energy holding company. Rather than an auction for 50% of the company, a stake Berezovsky could afford, the government on Friday said it would sell off 75% at a minimum bid of over $2 billion. It is now almost certain that

Gazprom

, Russia's largest gas company and long-viewed as Chernomyrdin's power base, will be the winner.

But what are we to make of the fresh-faced newcomer to the scene,

Sergei Kirienko

, named Monday as acting prime minister. He replaced youthful contemporary

Boris Nemstov

as head of the

Ministry of Fuel and Energy

last year, and is widely viewed as a moderate.

"He could be a stop-gap appointment," says DMG's Bond, perhaps serving from a month to six months before Yeltsin decides whether or not to keep him on. More permanent candidates include: mayor Luzhkov; provincial governors such as

Saratov's Dmitry Ayatskov

;

Yegor Stroyev

, head of the

Federation Council

; Nemtsov; and

Grigory Yavlinsky

, head of the liberal

Yabloko Party

.

The "dream" prime minister would be Nemtsov, says Bond, although Yeltsin would likely have to force through an approval of the 36-year-old nominee by dissolving the

Duma

. This is because the Duma, the lower house of parliament, is dominated by communists.

But look at who's lurking behind the curtain:

Anatoly Chubais

, the engineer of Russia's mass privatization and long a whipping boy for Yeltsin. Chubais also looks to be on the outs as a result of a special decree signed by Yeltsin. But it's likely he will sit on the board of and guide the demonopolization of Russia's national electricity company

Unified Energy System

, which would give him immense power over the economy.

Although unlikely, Yeltsin himself could run again for president. But Monday's events may have lowered that probability.

It seems that there are two Yeltsins. On one hand we have what one Russian broker describes as "the half-mad, impulsive table-pounder who regularly loses his marbles to dismiss the best government reformers, and the calculating conspirator." On the other is the seasoned politician with an uncanny knack for cutting off at the pass any one politician's political agenda sneaking its way into government.

Act one of the farce is over -- but no one dares to guess who becomes king.