Watching the Kremlin Balcony : Russia: Recent personnel changes may signal more trouble ahead for reform.

As much as President-elect Clinton may want to focus on our domestic economy, the events in the world around him may not allow him that luxury. For example, just as Clinton’s economic conference was about to begin in Little Rock, Russian President Boris Yeltsin decided to abandon his acting prime minister, Yegor Gaidar, and nominate Viktor Chernomyrdin in his stead. For outsiders, this certainly seems like a sharp change in policy for Yeltsin and one that Clinton cannot ignore.

After months of a fierce battle seeking to support Gaidar, why did Yeltsin suddenly abandon him? Under the terms of an agreement reached late last week with the Congress of People’s Deputies, Yeltsin could have reappointed Gaidar as the temporary prime minister at least until April. Given that Yeltsin had been so outspoken and supportive of Gaidar in the reform process, that certainly seemed to be what he would do.

Admittedly, Yeltsin realized that the reforms were not going well and that the economy was in trouble, with the gross national product dropping 20% or more and prices rising 2,000% a year. He also had been under tremendous pressure from the military-industrial complex--led by Arkady Volsky, chairman of the Russian Union of Industrialists and Entrepreneurs and leader of the Civic Union, the centrist political party--to curb reforms. Chernomyrdin seems like a throwback. He worked as a bureaucrat in the Communist Party for many years before he was appointed minister of the gas industry in February, 1985--a month before Mikhail Gorbachev’s appointment as general secretary and the beginning of perestroika . Last May, Chernomyrdin was promoted to minister of energy, replacing Vladimir Lopukhin, a Gaidar appointee who had supported raising domestic oil prices to world levels. His firing was the first sign that Gaidar’s reforms were in trouble.

Chernomyrdin has been associated with other anti-reform measures as well. After widely seeking Western bids for development of a major gas deposit in the Barents Sea, the Russian government decided to overturn a 1989 preliminary commitment to assign the commission to a team from Conoco, along with some Finnish and Norwegian firms. The contract agreement was then reassigned to Rosshelf, a group of 19 Russian companies, primarily producers of military equipment, including nuclear submarines. This seems to be a very pointed concession to the military-industrial complex and Volsky’s supporters.

What does all this imply for the reform process? At a minimum, it suggests that Chernomyrdin will slow it down. If he increases the subsidies to state enterprises and halts privatization, this will mean bigger budget deficits, more printing of money and higher inflation. In that case, the International Monetary Fund will find itself hard pressed to provide the loans it had promised. Without that support, the Russian economy will face even more difficult times.

There are also likely to be diplomatic consequences for the West. Yeltsin’s foreign minister, Andrei Kozyrev, has been especially vilified by the hard-liners. He is viewed as being too eager to please the West and the United States in particular. Among his shortcomings is his failure to stand up for the Serbs (fellow Slavs) in Yugoslavia, not to mention the Iraqis and Somalis, both important clients of the former Soviet Union. It is hard to see how Kozyrev or the other reform ministers can retain their positions in the post-Gaidar era.

There is also the chance that Yeltsin’s enemies will not be satisfied with Gaidar’s scalp. They may sense a weakness in Yeltsin’s armor and move more vigorously to force his resignation.

Chernomyrdin’s appointment may prove to be less of a retreat than immediate events would indicate. But Gaidar’s defeat is a development Clinton cannot ignore.