Russia's economic turmoil that was intensifying since late 1997 coincided with an acute political crisis. The latter can be compared only with the crisis of 1991, which put an end to the Soviet Union. Although the economic situation seems quite desperate, all Russia's political groups and parliamentary factions in their strategies nevertheless concentrate primarily on political issues because the current political crisis in fact marks the collapse of a political regime which was established under the 1993 Yeltsin's constitution. The constitution, which was drafted in a situation of an acute struggle for power, was designed to enshrine the political power in the hands of Yeltsin and the "reformers". This constitution formed the basis of a "superpresidential system"¹ in Russia through giving vast rights to the President in the field of executive and even legislative power. Described by many observers as a "tsarist rule", this system also brought to life the phenomenon of favouritism which was so common in tsarist times. Moreover, often Yeltsin himself encouraged the struggle between different groups of his supporters, each aspiring to gain influence over the President. In the end, actions of these groups balanced each other, allowing the President stay aside and act as a referee.

A version of the democratic principle of "checks and balances" that emerged in post-Soviet Russia substituted counterbalance between different branches of power by struggles between rival cliques. This system came to a deadlock when the referee (President) failed to play his role, mainly because of his poor health. The situation was complicated further by a loss of popular support to the regime. By the mid-1990s it was clear that seven years of "radical economic reforms" failed to improve standards of living of the Russian people. In 1997 Russia again found itself ruled by a weak leader who was surrounded by rival political groups, each seeking to promote their own goals and displaying little care for common people and the future of the country. The regime was clearly politically weak, provoking serious doubts of whether it was capable to solve grave problems that the country faced.

It is my view that in order to characterise the political situation in Russia one can use theories of "post-catastrophic society" and of "official rights transformation". According to the first theory, the social catastrophe that Russia experienced eighty years ago and the historical events that followed it (first of all, Stalin's Great Terror) resulted in an "atomisation" of the Russian society. In the early 1990s Soviet social and political structures, which represented a pyramidal hierarchy based on the total power of the Communist party, have disintegrated. Decades of suppression of any individual initiative (including but not only that of political opposition) and the elimination of elites that could not be integrated into Communist party structures, predetermined the development of a post-Soviet situation when the Russian society found itself incapable to establish normal political parties that could protect the interests of various elites and social groups. There are no consolidated elites in modern Russia, and there are also no mature legal structures. Only clan- or mafia-type formations can survive; these are based on a sense of common origin or on a common aspiration to dominate over other groups.

By late November 1998 the Russian Ministry of Justice had registered 95 political parties and 154 political movements that operated on the national level². Only few of these have more or less known leaders and practically not a single of these organisations has a practical program of measures aimed at solving Russia�s problems. Many of these so-called parties and movements are just tools for obtaining power by their leaders; few of them can be called political structures that are capable of representing wide social groups and interests.

Majority of Russian parties has no means to influence political decision-making. Only those parties that have managed to establish strong factions in the Parliament play a role in this process. Thus, one can say that in 1995-97 a version of a two-party system has emerged in Russia, which united the so-called "party of rulers" against the so-called "system opposition". The "party of rulers" included "Russia is Our Home" (ROH) movement that was created in 1995 by then Prime Minister Viktor Chernomyrdin, as well as all major political groups that supported the President and the federal government. Virtually, it was a flexible coalition that attracted a large number of minor parliamentary factions and groupings together with those democratic and reformist parties and movements that lacked parliamentary representation. These included the parliamentary faction of "Russian Regions", "Democratic Russia" movement, Party of Russia�s Democratic Choice, Party of Russian Unity and Consent, and the Republican Party of the Russian Federation. On a few instances the government also managed to gain support from the Liberal Democratic Party (headed by Zhirinovsky) and "Yabloko" (led by Yavlinsky).

On the other hand, Communist party of the Russian Federation (KPRF) formed the basis of "system opposition". KPRF was joined by parliamentary factions of Agrarians (Lapshin) and "People's Power" (Nikolai Ryzhkov). However, it often turned out that the confrontation between the "party of rulers" and the "system opposition" could easily be overcome. In most cases both sides managed to achieve agreements on such major issues as the adoption of state budget, changes in taxation policy, etc.

It should be noted, however, that sacking of Viktor Chernomyrdin from the post of Prime Minister in March 1998 had destroyed this system. At first, ROH lost its attractiveness to regional leaders and the federal bureaucracy. Later, in August, the federal government lost all of its earlier political support in the Parliament when it became obvious that no parliamentary faction was any longer prepared to support young Prime Minister Kirienko. Thus, it was only the federal government that continued to form the "party of rulers". This lack of support meant that the government had to manoeuvre intensively in order to satisfy conflicting interests of various clans, financial and industrial groups, as well as of regional elites and of the "system opposition". In September 1998, after Primakov was appointed to the post of Prime Minister, it was the "system opposition" that managed to significantly strengthen its positions. New Prime Minister became its ally, thus isolating other opposition groups from access to power.

Therefore, it can be stated that in Russia political parties do not convey interests of broad social groups, and they are not engaged in promotion of ideals of civil society and democracy. Even the "party of rulers" and the "system opposition" are unable to embrace interests of broad social groups. In fact, many Russian parties, with the exception of leftist parties, act as political clubs that represent only their members. Their primary goal is to ensure election of their leaders to the Parliament. Russian legislation allows a parliamentary candidate to be simultaneously included in a national party election list and in an election list in a one-mandate constituency. This allows a candidate to receive state funding for his election campaign at a double rate and provides him with certain preferences for electoral advertising in mass media³. Another important goal is securing that leaders of these small parties enter the circle of Russia's political elite.

Authors of the theory of "official rights transformation"⁴ argue that, in contrast to capitalism, in a socialist society domination by a Communist government leads to an elimination of individual rights. Thus, the socialist economy is not based on the exchange of property rights, which forms an important part of an individual rights system. Instead, state officials manage massive state property through using the rights that are granted to them by the positions they hold. However, this system works only in a situation when there is a repressive apparatus that is reinforcing it. If, for any reason, the latter is not functioning properly, officials-managers start to spontaneously convert their official rights on property into individual property rights, seeking to ensure their own economic interests and to guarantee the well-being of their families.

The latter, in my view, helps to explain the logic of the events that are taking place in Russia. The creation of the new Russia came as a result of the gradual demise of the Soviet Union. Following the collapse of the USSR a "clan-corporate capitalism" began to take shape in Russia. (In fact, the first symptoms of this development became visible already during the Brezhnev's rule⁵.) This development had its roots in the legacy of the command economy - a number of small management pyramids have emerged from the collapsed authoritarian bureaucratic government; it also incorporated the emerging capitalist relations, as well as semi-feudal clan relations which existed in Russia in a transformed form since tsarist times. Even before privatisation became an official state policy, various political groups were already actively involved in privatisation of state property. The result of this development was the emergence of the so-called 'oligarchic' groups. ⁶

In the uncertainties and chaos of the first years of transition the best way to achieve a political goal was to act with the support of or directly from within governmental organisations. In Russia nearly all of large companies and banks have emerged on the basis of governmental orders. Thus, from the start the access to political decision-making appeared to be directly linked to profit making. It can be stated that a period of 1992-97 were the years when different clans and groups struggled for the best pieces of Russia's state property through the use of their political connections and/or through direct participation in the government. Political connections were especially important because the old Soviet nomenklatura system has managed to survive beyond the end of communist rule. Dmitrii Yuriev argued that nomenklatura, as a special group of administration professionals united by common political and economic interests, in the post-Soviet years has preserved 80 to 90 percent of positions at all levels of government in the areas of economic and land management⁷.

In its 1998 Transition Report EBRD stated that through rapid privatisation Russian reformers have transformed the former de facto control of managers into de jure ownership rights. The Russian privatisation model left control of most companies in the hands of former managers, who eventually blocked further reforms and restructuring. This Russian experience proved to be a most powerful example of negative consequences of an insider ownership that become particularly severe when insiders have inherited or developed strong ties to the government⁸. The weakness of Russian state institutions created ample opportunities for managers and bankers to "capture" politicians and bureaucrats at every level of the government.

Thus, the creation and the consecutive growth of leading �oligarchic� groups in Russia was based upon their connections to Russian officials who in the early 1990s substituted USSR apparatus. In contemporary Russia the level of proximity to federal or regional authorities became a determining factor of the influence of any particular group. One of major methods through which �oligarchic� groups were established was a transfer of state accounts to this or that commercial bank. As a result, the latter immediately found itself in favourable conditions for future growth and rapidly expanded its activities to other spheres of the economy. Moreover, in many cases the group that controlled such bank was also often a beneficiary of confidential information and special treatment during the privatisation process. On the other hand, as it became evident in 1995-96 elections, state authorities in turn became dependent on �oligarchic� groups.

It would be wrong to state that �oligarchy� in Russia is something united. Thus, in a strict sense of the word, it even cannot be called oligarchy. Various groups that make Russian oligarchy constantly fight each other. There are serious policy and economic interests dividing the 'oligarchs' such as the issue of economic protectionism. Since these differences are often over the issue of which group is going to receive increasingly shrinking government resources, one might expect that in the future struggles within oligarchy might well become even more fierce. At the same time one of the major conflicts that drives apart the oligarchy is the conflict between bureaucracy and new managers-bankers that coexist, but do not merge. Sergey Peregudov points to a dispersing and chaotic character of interaction between oligarchic groups and authorities in Russia, which eventually forces elites to pursue mere egoistic and short-term goals⁹.

Some of the groups within oligarchy seem to be very influential. Back in early 1996 it was the Russian business community, headed by so-called 'semibankirshchina' (the rule of seven banks) or 'oligarchs', that gave their support to Chubais in his successful attempt to save Yeltsin's re-election campaign. According to some reports, this group of bankers controls one half of Russia's economy. It includes a number of Russian major companies: LogoVAZ (headed by Berezovsky), Oneksimbank (Potanin), Menatep (Khodorkovsky), Most-Bank (Gusinsky), Alfa group (Aven and Fridman) and SBS-Agro (Smolensky). The group exercises its control over all major Russian oil companies: Sibneft, Sidanko, Yukos, Alfa-Eko, Rosneft and others - which in total account for more than half of extraction, processing, and export of oil from Russia. Before August 1998 the InterRos-Oneksimbank-MFK group, headed by Mr.Potanin, alone had assets equal to nearly 10 percent of Russia's GDP.

The story of InterRos-Oneksimbank group gives a good example of how 'oligarchs' have acquired their huge assets. While working with then Russia's privatisation chief Chubais, Potanin drafted "loans-for shares" privatisation plan that in 1995 allowed selected entrepreneurs with good connections in the government to obtain control over large state assets. The idea was to auction controlling stakes in Russia's large companies in exchange for bank loans, in order to cut down the deficit of the state budget and to promote privatisation campaign. Although initially it was planned that after a period of time state assets will be sold at open auctions, the government was not able to repay loans, thus providing banks with an opportunity to obtain assets cheaply through insider deals. Oneksimbank had acquired a full control over Norilsk Nikel, the world�s largest producer of non-ferrous metals, as well as over Sidanko, Russia's third largest oil company. Other financial groups also benefited from the scheme. Later, in 1997, Potanin who was backed by George Soros, at a privatisation auction has paid a total of US$ 1.8 billion for 25 percent of shares in the national telecommunications company Svyazinvest. Allegedly, Potanin's success at the auction came as a result of his close relationship with Chubais, who at that time was the first Deputy Prime Minister. This sparked off an acute political struggle within oligarchy between, on the one side, Gusinsky, Berezovsky and Alfa Group's head Fridman, and, on the other, Potanin and Chubais.

The power of Russian oligarchy was further strengthened when in the early 1990s the Russian government gave up to lobbyist pressures and failed to set up its own treasury department. Instead, state financial flows were channelled through commercial banks allowing top banks with a "plenipotentiary" status and government bureaucrats with relevant access to profit from the practice. Oneksimbank won the biggest "prize" of all: in 1995 it started to manage accounts of the State Customs Committee. Part of these funds was later used to purchase Svyazinvest shares.

The transfer of state assets to management by commercial banks was also facilitated by the fact that the Russian government traditionally had a significant degree of freedom in spending money from budgetary and out-of-the-budget funds. In November 1998 Dmitrii Lvov, Academician-Secretary of the Department of Economics of the Russian Academy of Sciences, announced that a group of academics under his guidance was assigned to check pay-sheets of Chernomyrdin's Cabinet for the last five years. Experts were astonished when they found that the balance lacked US$ 74 billion¹⁰. According to Lvov, every year US$ 5 billion alone were written off as "mistakes in accounting". In another recent report drafted by the Accounting Chamber it was stated that the Ministry of Finance failed to establish a system of accounting records. Thus, budgetary funds were used not in accordance with the law but voluntarily, following decisions made by that or other official¹¹.

After Yeltsin's re-election in 1996, 'oligarchs' started to demand "rewards" for the political support they provided earlier, including unrestricted access to the remaining state property. However, the real life has shown that they still needed to struggle for government's favours. The situation was further complicated as a result of Yeltsin's health problems, when the power appeared to be largely in the hands of one group within presidential administration. Only one of 'oligarchs' managed to get into this circle: it was Boris Berezovsky. According to media reports, throughout recent years Berezovsky was close to Yeltsin, at first via his bodyguard Korzhakov and then through Chubais. Following Cubais' departure from the government Yumashev, co-author of Yeltsin's autobiography and the head of his administration, became Berezovsky's ally, later joined by president's daughter Tatiana Dyachenko.

It is therefore hardly coincidental that other 'oligarchs', after Berezovsky cut them off from access to power, had virtually supported Duma's efforts aimed at a significant reduction of presidential prerogatives. This was also accompanied by a shift in mass media, which was dominated by 'oligarchs'. In the course of 1998 Russian media attitudes towards Duma, which just a few months ago was portrayed as a political circus with liberal-democrat Vladimir Zhirinovsky as a clown and Communist party leader Gennady Zyuganov as a black comedian, have changed to a much more balanced and friendly approach.

However, the political landscape of Russia is much more complex than the one outlined above. It came as a surprise when in late 1998, following the development of the economic crisis in Russia, commercial banks controlled by 'oligarchs' suddenly found themselves under attack from the Russian Central Bank (TsBR). The latter acts as a major Russian commercial bank. It is involved in buying and selling securities. It invests in affiliated companies and banks, and has assets abroad. And none of TsBR's actions is subject to any control. In 1997 the declared income of TsBR had reached 17 trillion roubles or nearly US$ 3 billion. Some 75 percent of this income came from operations with state securities, foreign currency and from lending money to commercial banks. The source of the remaining 25 percent was never explained by TsBR. There were reports that TsBR invested nearly US$ 1 billion in construction projects. In the same year, 1997, TsBR's revenues that were transferred to the state budget equalled only US$ 234 million. An attempt undertaken by the Accounting Chamber of the Federation Council (upper house) of the Russian Parliament to audit TsBR's accounts has failed because the bank declared a significant part of its files to be classified¹². It was only in September 1998 after the resignation of the chairman of the bank, Sergei Dubinin, that the General Procurator's office finally started an investigation of TsBR's activities.

Recent developments point to a conclusion that the Russian Central Bank under leadership of Dubinin was actively engaged in channelling of the pyramid of state obligations into commercial banks. TsBR made it obligatory for commercial banks that serviced state accounts (and these were mainly banks that were controlled by �oligarchs�) to buy state securities. As a result, one third of combined assets of Russian banks was invested in state securities. While at first operations with state securities were profitable, at the beginning of 1998 it became obvious that the debt on state securities could not be repaid. In May TsBR, which itself was the largest holder of state securities ¹³, started to dispose of state securities that it held. Within a short period of time the bank sold state securities totalling 10 billion roubles, a development that triggered a massive capital flight from the Russian financial market.

It was then that it became obvious that Sergei Kirienko's government would not survive for a long period of time. (At the time when Kirienko was appointed to the post of Prime Minister some observers argued that he acted as a temporary figure who was put forward in order to give the former Prime Minister, Chernomyrdin, an opportunity to save his political image and to escape the responsibility for the impending economic and social crisis in Russia.) The Russian government tried to postpone the collapse of the financial pyramid through requesting new loans abroad; however, funding that was available was not sufficient to halt the breakup of the Russian financial market. In mid-August 1998 the Kirienko government was forced to devalue the national currency, rouble, and to announce default on loan repayments.

Just days before these measures were taken, Yeltsin made a statement saying that there would be no rouble devaluation. Therefore, the government called a de facto devaluation an expansion of the existing "currency corridor". No matter how these actions were called, they caused panic among the population with masses of people trying to exchange roubles into foreign currency. Eventually, the Kirienko government had to step down. Even before the August crisis Kirienko's positions were significantly undermined by actions of the Central Bank. In late July TsBR triggered a minor budgetary crisis when it uniformly transferred 8.7 billion roubles (US$ 1.5 billion) from the account of the Ministry of Finance. That immediately caused new wave of problems with the repayment of matured state securities, paying of salaries to state employees, etc.

Following the August financial collapse the future of many Russian commercial banks was increasingly becoming uncertain. It should be noted that already in early 1998 many banks were facing a default threat, particularly because of the decreased value of Russian state securities after the Asian financial meltdown. Thus, many banks tried to sell short-term bonds they held and to avoid buying new ones. But only a few of these banks could yield to pressures from TsBR. (In June 1998 the Central Bank administration issued another memorandum "advising" commercial banks to buy state securities; TsBR also allowed commercial banks to use money from private deposits for purchases of state securities.) As a result, by mid-1998 the share of state securities in the assets of Russian major commercial banks was between 80-96 percent. The latter explains why the majority of Russian banks could not satisfy demands of their clients, when in August 1998 the currency crisis triggered a massive rush to cash out banking accounts.

In addition to that, on the eve of the August official announcement of rouble devaluation and default on debt repayments, TsBR has stopped crediting Russia's leading banks that serviced private customers. Later, when the Central Bank did issue stabilisation loans to commercial banks, these loans had an interest rate of 250 percent attached to them. Even so, some of these loans could not reach commercial banks. In the case of SBS-Agro bank the provision of stabilisation loan was blocked under a pretext that this bank should repay its debts to TsBR. At the same time commercial banks that had few private customers and maintained close relations with the Central Bank continued to receive credits. For example, this was the case of the National Reserve Bank, which was headed by Dubinin's wife and was controlled by Gasprom (that held 51% of its shares) ¹⁴. Tekhnobank was another bank that was supported by TsBR. Coincidentally, Tekhnobank's Council included the names of such leading Russian reformers as Yegor Gaidar and Boris Fedorov, both of whom were friends with Aleksashenko, the then TsBR�s deputy chairman.

TsBR's loans that managed to reach certain commercial banks had greatly increased the effective demand for foreign currency. The situation on the currency market was made even worse when the Central Bank announced that it cut reserve requirements of commercial banks from 10 percent to 7.5 percent, claiming that this measure would help to pay deposit holders. However, in attempt to save their own assets banks forwarded this money into currency purchases. According to some estimates, a decrease of one percentage point in minimum bank reserve requirements had injected an additional 2.5 billion roubles (US$ 185 million) into the banking sector.

As a result of the collapse of the Russian bond market and TsBR's actions the six leading Russian commercial banks - Menatep, Most, SBS-Agro, Inkombank, Mosbiznesbank and Promstroibank - found themselves incapable to meet their obligations. In this situation in order to protect private depositors TsBR announced of its decision to transfer private deposits from the six banks to the state owned Sberbank (Savings Bank). This was done despite of the fact that the financial position of Sberbank, which had also invested large assets in state securities, was in no way better than in other Russian banks. From a formal side this TsBR's decision was aimed at providing guarantees to population's deposits. But the point was that it, on the one hand, drained commercial banks of household money and, on the other, significantly devalued deposits, as the latter should have been transferred at the exchange rate of September 1 at a time when the rate was falling by more than ten percentage points per day.

It is important to note that during the years of the Russian reform, the �oligarchic� business that developed in the country did not become self-sustained and could not survive without a constant support from the state. The events of August 1998 made that obvious. Even before 17 August several major commercial banks, like Inkombank, were already facing serious problems. Some of them tried to attract additional funds through increasing interest rates paid on deposits. This was the case with Most-bank that in March 1998 offered an exorbitant interest on deposits. Many of these banks then turned for support to TsBR and managed to secure new loans, also under an exorbitant interest. Another bank, SBS-Agro, acted in the same way when it received a loan of US$ 100 million on a condition of securing 76 percent of its shares¹⁵. Apparently, when the August decisions were announced, the Kirienko�s government thought that the moratorium would enable commercial banks to solve problems with their clients. However, banks quickly channelled all of their liquid assets into purchases of foreign currency, thus, blocking the financial system. At the same time the August moratorium had seriously undermined the positions of those Russian banks that were still financially solvent, as it had also denied them access to international capital markets.

During the period of 1996-98 the increase in money supply that was not guaranteed by the state gold and currency reserves amounted to less than 60 percent. Theoretically this formed the limit for any rouble devaluation. However, in practice the rouble exchange rate in late 1998 had dropped from 6.7 roubles per one US dollar to 21 roubles per dollar, or more than 3 times. Many observers believe that it were TsBR's activities that provoked such a dramatic fall.

In October 1997, when the first wave of the Asian crisis occurred, the rouble currency rate was kept stable with just relatively small currency interventions from the Central Bank. That was despite active operations with state securities that were also taking place at the time. In early August 1998 the state gold and currency reserves were not significantly different from 1997. Commercial banks held only 9.8 billion in roubles, which was three times less than in October 1997 when TsBR increased the interest rate from 15 percent to 150 percent. In August 1998, due to stalled operations with state securities, it was estimated that about 30 percent of bank assets became frozen¹⁶. Thus, Russian commercial banks were simply not in a situation to meet the increasing demand for foreign currency. According to official reports, in July-August 1998 the total amount of TsBR's interventions into the currency market constituted US$ 9 billion. With an average exchange rate of 7 roubles per dollar that meant that the Central Bank should have received 63 billion roubles from these operations. However, as it was indicated above, Russian commercial banks did not have these funds.

In this regard it is worth pointing out that several months before the August crisis the procedure for purchasing of foreign currency in Russia was simplified. In early 1998 TsBR had abandoned its earlier requirement that demanded that commercial banks reserved rouble bonds equal to the amount of foreign currency they wished to purchase. (This procedure was introduced after the "black Tuesday" of October 1994, when the rouble fell 20 percent during one day, with the aim of preventing any future currency speculation activities.) In addition, in June 1998 TsBR has started to issue one- or two-day loans. All these measures enabled buyers on the currency exchange to purchase foreign currency even without roubles of their own. It was just sufficient for such a buyer to have good connections with TsBR, which gave access to "overnight" loans.

Smolensky, the chairman of SBS-Agro Bank that became the first target of the TsBR's post-August drive for nationalisation, had accused the Central Bank of washing US$ 20 billion from the Russian financial system¹⁷. According to some earlier estimates, in the course of the 1997 investment boom, when US$ 44 billion were invested into Russia, TsBR's currency reserves should have increased by US$ 19.1 billion.¹⁸ However, according to official sources, these reserves by the end of 1997 increased by only US$ 1.8 billion. Taking into consideration that during 1997 TsBR had spent about US$ 10 billion on supporting the rouble exchange rate, that means that US$ 7.3 billion had mysteriously disappeared. These accusations of direct theft by TsBR's officials were made public in September 1998 ¹⁹.

In order to prevent the collapse of some major commercial banks in the post-August period, TsBR announced that it was introducing its own administration in some of these banks, namely SBS-Agro bank²⁰ and Inkombank, which were respectively the second and the third in the list of Russia's top commercial banks. The Central Bank managed to establish its control over these commercial banks despite attempts of the latter to form coalitions in order to minimise losses and to survive the crisis. This trend towards amalgamation in the bank sector was significantly strengthened when five leading banks organised a unified banking group formed around National Reserve Bank, which was close to Gasprom corporation. The process of bank mergers was started several months before August 1998, but it became much more active following the spread of the Russian financial crisis and the consequent TsBR's activities. Back in early 1998 it was reported that Gasprom started to buy shares in Russian commercial banks²¹. This Russian gas monopoly had managed to obtain a controlling interest in Promstroibank and Inkombank. The new alliance that was formed after the August crisis included National Reserve Bank, Imperial Bank, Gasprombank, Promstroibank and Inkombank. By that time it became clear that Gasprom was actively involved in building one of the largest financial coalitions in Russia.

Another banking merger that was announced at the same time included three large commercial banks: Oneksimbank, Most-Bank and Menatep. The news of this merger caused far less sensation, since these banks represented established lobby groups inside the 'oligarchy'. Their merger, therefore, was seen as a prelude to a possible formation of a new giant oil company on the basis of the two Russian oil-producing corporations - Sidanko and Yukos, which respectively were controlled by Oneksimbank and Menatep.

Only a few of Russian banks managed to survive the August financial crisis with minimal losses. That, for example, was the case of Alfa Bank that had longstanding connections to Yeltsin's administration. This bank was authorised by the state to service the city budget of the second largest Russian city, St.Petersburg. In the post-August period some major regional banks and banks that keep accounts of large oil, gas, and precious metals' exporters also remained relatively stable.

Some of recent reports from Russia suggested that head of TsBR Dubinin was connected to the pressure group controlled by Chernomyrdin and built around the Russian gas monopoly, Gasprom. Apparently, Dubinin's wife is a head of National Reserve Bank, where Gasprom has a controlling share. It is hardly coincidental that in October 1998 when Dubinin retired from the post of Chairman of TsBR, he was appointed to Gasprom Board as Deputy Chairman. In addition, until recently all of TsBR's leading personalities were known to have direct ties with the former Minister of Economy, Yevgeniy Yasin, who was always supported by Chernomyrdin. Dubinin himself worked with Yasin during his earlier career in the academy. The first Vice-Chairman of TsBR, Sergei Aleksashenko, is a former Yasin's student. Another Vice-Chairman, Denis Kisilev, is Yasin's son-in-law who is married to Irina Yasina, the head of the Central Bank's press service²². Thus, one can even say that the Russian Central Bank became a kind of private family business!

As developments of August-September 1998 have shown, private interests were a dominant factor behind actions of �oligarchs� as well. Many bankers used the 90-day moratorium on fiscal transactions, which was imposed by TsBR, as means of stripping their banks of the remaining funds²³. As one of oligarchs put it, there is hardly any other business as profitable as participation in bankruptcy procedures²⁴ when, in case of insolvency, managers of a bank often transfer bank assets into their private possession. According to Russian press reports, that exactly was what happened in cases of Tokobank, Inkombank and Imperial²⁵.

Four months after he was sacked from the post of Prime Minister, Chernomyrdin had made a sudden comeback onto the Russian political scene. On 27 July 1998 the government received an open letter on developments in North Caucasus, which was signed by the "Big Four" of Russian politics: Viktor Chernomyrdin, Alexander Lebed, Mentimir Shaimiev and Boris Berezovsky. The four politicians occupied prominent positions in the Russian political elite. Though at different stages all of them took part in attempts to solve the Chechen problem, their joint declaration was seen more as an occasion to declare creation of a new political coalition that brought together 'business nomenklatura' (Chernomyrdin), regional leaders (Lebed, Shaimiev) and oligarchs (Berezovsky). Publication of this declaration was also seen as an important step in the preparation to parliamentary and presidential elections of 1999-2000.

The power base of "Big Four" is drawn from two political parties (Chernomyrdin's ROH and Lebed's National Republican Party), profitable industries (oil, gas and metals' production) and the "governor's group" (which unites the most influential governors in the Federation Council). At the same time, because both Chernomyrdin and Lebed wanted to be leaders, the coalition had serious internal weaknesses. Lebed's presidential aspirations were in an open conflict to those of Chernomyrdin, particularly after in May 1998 Chairman of Gasprom's Board Rem Vyakhirev had openly announced that his company would give its support to Viktor Chernomyrdin in the 2000 presidential elections.

According to some Russian observers, Berezovsky was the man who initiated Chernomyrdin's return to politics. He was actively lobbying the idea of returning Chernomyrdin back to the position of Prime Minister through his connections in the President's inner circle (like the head of Yeltsin's administration, Yumashev, and President's daughter Tatiana Dyachenko). At the same time, Berezovsky was careful not to put all "eggs in one basket": during gubernatorial elections in Krasnoyarsk he reportedly provided General Lebed with a significant financial support. Communist leader Gennady Zyuganov was reported as saying that Berezovsky was providing him with a valuable economic advice. One of Russia's leading newspapers, "Nezavisimaya Gazeta", which is known to be controlled by Berezovsky, even suggested that the Russian Communist Party should be able to nominate the chairman of Russian government or at least take a dozen of portfolios in the new government.

The August crisis became an excellent opportunity for the Soviet and post-Soviet economic nomenklatura, headed by Chernomyrdin, to strengthen its positions and to weaken that of 'oligarchs�²⁶. These efforts were facilitated by the fact that 'oligarchs' continued to fight each other, while it was really Berezovsky, who decided to play against all other 'oligarchs', who benefited from the crisis. Following the August collapse Berezovsky had managed to buy a significant share in SBS-Agro Bank. In return for his earlier support for Chernomyrdin, Berezovsky reportedly wanted to place his people into leading positions in Gasprom and Transneft (the latter is the company that owns the Russian oil pipeline network). Berezovsky's expansion provoked other 'oligarchs' to demand limitations to his increased role in domestic politics and subsequently in the economy²⁷. Ironically enough, the help came from the Communist party, which shifted its position and withdrew its support to Chernomyrdin's return to the Premier�s office.

As argued recently by Dmitrii Trenin, we are not in a position to know what Russia will look like in 20-25 years, but we cannot presume that after solving its "transition" problems Russia will become a sort of Western society, a nation deeply integrated into the Western community. We cannot also expect that Russia will return to a Stalinist (neo-Stalinist) regime. But there is a lot of other options - for example, the Latin American model with developed oligarchy and oppressed civil society. Thus, according to Trenin, the real movement forward for Russia lies not through conducting deep reforms but through the so-called �muddling through' process, when avoiding catastrophes becomes much more important than the success reached in implementation of that or other reform²⁸. In other words, this is a choice between a revolutionary path (reforms) and an evolutionary scenario (muddling through). It may be stated that, because of its historical heritage, Russia became tired of revolutions. Under these circumstances the second option appears to be a much more realistic scenario for the future. This process of muddling through will eventually demand an establishment of a professional system of managers (like Chernomyrdin, Luzhkov or Primakov), but not reformers (like Gaidar, Chubais and Kirienko), albeit none of them might be seen in any pure capacity.

Throughout his years as Russia's top politician Chernomyrdin remained largely in Yeltsin�s shade. It was only in summer 1998 that he started to "play" an independent political game. Reportedly, he also managed to receive from Yeltsin assurances that he will have an independent control over the government. When on 24 August 1998 Viktor Chernomyrdin returned to the government as Acting Prime Minister, experts practically unanimously assessed that as his personal triumph. The pyramid of short-term state obligations (GKO-OFZ) that was built by the former Chernomyrdin�s government fell onto that of Kirienko. At the same time, the devaluation of the rouble, so painful for the population, was clearly beneficial for Russian exporters, including Gasprom. Whilst the national financial system was paralysed, the �oligarchs� were losing their assets and eventually their power. And, above the all, at the time of his return Chernomyrdin had the strongest chances of becoming Yeltsin�s successor in the presidential office in 2000.

This was quite a dramatic change from the situation that surrounded Chernomyrdin in March 1998 when he was sacked from the government. Then, as some reports suggested, Yeltsin decided that Chernomyrdin became too independent and even started to act as a future president, which was considered to be a disgraceful behaviour under a constantly ill, "virtual" Yeltsin. The widely accepted understanding is that in March 1998 Yeltsin decided to sack Chernomyrdin - who was the person ideal to ensure the survival of the current regime and to defend Yeltsin�s family - because Yeltsin truly believed in his own ability to keep the presidential office after 2000²⁹. Thus, he again tried to repeat the 1996 scenario forcing on the electorate the choice between himself and Communists. It was also reported that in early 1998 the two rival pressure groups of Berezovsky and Chubais agreed in their assessment of Chernomyrdin as a major obstacle in their struggle to gain the decisive influence over the President. The formal cause for sacking was the fact that Chernomyrdin discussed the future of US-Russian relations after 2000 with US vice-president Albert Gore in absence of any other Russian official.

The change in Yeltsin's attitude towards Chernomyrdin, that took place in August 1998, could be explained by Yeltsin�s declining physical and mental condition which made real a possibility for "young reformer" Kirienko to become an acting president. That was unacceptable to many within President�s close surrounding, as well as for the majority of the Russian political elite. Thus, reportedly it were Yumashev, Dyachenko and Berezovsky that persuaded Yeltsin to return Chernomyrdin, who was considered to be the only person capable of protecting Yeltsin�s family.

Ironically, it would not be wrong to assume that in early August 1998 opposition leaders like Gennady Zyuganov and Nikolai Ryzhkov would have fully supported Chernomyrdin�s nomination³⁰. Moreover, as Chernomyrdin himself stated, it was Gennady Zyuganov and Nikolai Ryzhkov who were the first to talk to him about his possible return³¹. Obviously, Communists expected to get hold of several portfolios in the new Chernomyrdin's government. But, according to some reports, Chernomyrdin did not make any large promises to Zyuganov: just a couple of ministerial posts, including the one that by that time a communist Yuri Maslyukov had already received (Minister of Industry) ³².

While in early September 1998 ROH leaders were in euphoria, distributing posts in the new cabinet, the Communist parliamentary faction reassessed the situation and, given Yeltsin�s declined physical and also mental condition, took a decision to change its political tactics. It needs mentioning that the Russian Communist party controls Duma (the Lower House of the parliament); therefore, it can and in September 1998 effectively did block Chernomyrdin's approval as Prime Minister. When in late September 1998 Chernomyrdin again re-appeared on the Russian political scene, he directly blamed the Duma majority of "dishonest intrigues", announcing that he would never co-operate with them in the future. However, it does not mean that Chernomyrdin decided to leave Russian politics for good; he probably decided to step aside and wait for another several months until Primakov's government falls down. If that happens, the Duma will be discredited too. And then a new opportunity may again arise for Chernomyrdin.

As Russian developments of August-September 1998 have shown, in the aftermath of the crisis Yuri Luzhkov initially supported Chernomyrdin�s return to power, even though such a move was creating an additional obstacle on his road to presidency, something that the Moscow mayor tried to conceal. However, because both Zyuganov and Luzhkov had the same powerful rival in their quest for power - Chernomyrdin, an alliance between them was seen as very possible. Thus, when Luzhkov decided to drastically change his attitude towards Chernomyrdin's nomination, this move had significantly strengthened positions of the Communist faction, particularly after the latter decided to abandon its earlier agreements with Chernomyrdin. Later Luzhkov himself publicly announced of his own intention to stand for the presidency. By January 1999 Luzhkov has already evolved into an outspoken critic of Yeltsin when he openly demanded that the President should step down because he could no longer fulfil his responsibilities.

It seems that when he made a decision to enter a coalition with Luzhkov, Zyuganov was attempting to reach at least two goals. First, to create a political counterbalance for potential strengthening of Chernomyrdin's positions. Second, to get Luzhkov openly involved in the struggle for the presidential office as a left-centre candidate, promising him communist support without, however, really intending to provide it and, thus, weakening positions of the possible candidate for presidency.

In the last months of 1998 the Zyuganov-Luzhkov rapprochement was significantly undermined by the anti-Semitic scandal that erupted in November. Public anti-Semitic statements that were made by some communist leaders were more a representation of their own personal political vision and an unbalanced character, rather than a sign of a major change in the communist policy. However, these statements should also be viewed in the framework of continuous attempts on part of communists aimed at exploiting the "Russian national idea" as means of increasing their electoral support. Many Russian politicians, including Luzhkov, Zhirinovsky and Lebed, try to play a nationalist card. Communist radicals that made these statements attempted to present themselves as most genuine defenders of the nationalist idea. In a country that has a long history of fighting against "foreign spies" they expected to have a most favourable public response.

After the anti-Semitism of certain communist leaders became public, Yuri Luzhkov decided to decline the possibility of a political coalition with Zyuganov. In his statements Luzhkov openly regretted that the Communist Party was unable to condemn "the wild anti-Semitism" of communist leader General Makashov. (This, however, did not stop Moscow police from cleansing actions against Caucasian and Asian visitors and residents.) At the same time Yuri Luzhkov also publicly rejected any possibility of a coalition with the right wing of the Russian political spectrum, represented by Anatoly Chubais or Yegor Gaidar.

A lack of an institutional support in regions is a major weakness in Luzhkov's current political position. He tries to close this gap through constructing of new alliances with a number of national political movements. Some recent reports suggested that he again turned his attention to ROH and is particularly interested in taking control over regional structures of the Chernomyrdin's movement. Some major ROH members who, in their turn, forced Chernomyrdin to create an election coalition with Luzhkov, met this new Luzhkov's policy with a warm welcome³³. For instance, one of ROH's most prominent leaders, Alexander Shokhin, had openly expressed a doubt that Chernomyrdin still had a chance to win future presidential elections. Consequently Shokhin was forced to leave the post of leader of the ROH faction in Duma, but many of movement's members continue to share his view; in late 1998 some even started to openly join Luzhkov's movement "Fatherland". Crisis in ROH does not, however, mean that Chernomyrdin has totally abandoned his earlier aspirations for the presidential power. In January 1999 it was reported that he was actively trying to ensure his own "political control" over Gasprom, which he views as a main source of funding in the forthcoming elections³⁴.

Luzhkov's current political position is rather vague. He appears to be politically "omnivorous", ready to form coalitions with nearly any party or movement, either left or right, that will pledge to support him in his presidential drive. He presents himself as a "centrist" and carefully avoids stating his political views in public. His proclaimed political platform is made from a strange mixture of capitalism and socialism - "capitalist work, socialist distribution", in which one could find whatever he likes. However, the Moscow mayor's views are consistent on at least one issue: among Russian leaders he is probably the most outspoken supporter of the "Russian national idea". He even named his own political movement "Fatherland".

Following the August 1998 crisis and the gradual demise of 'oligarchs', Luzhkov's earlier stake on receiving political gains from his co-operation with Russian business tycoons became slim. Instead, in the last months of 1998 he managed to create his own system of financing of his political ambitions that included a formation of a holding company that united about one hundred most profitable Moscow-based enterprises. The assets of this company are estimated at a level of US$ 3 to 4 billion. ³⁵ Luzhkov�s brother-in-law Vladimir Yevtushenkov was appointed to the post of general manager of this holding company and coincidentally also became a leading figure in Luzhkov�s movement "Fatherland".

Contrary to other Russian political parties and blocks, the Communist party is significantly less dependent on outside sponsorship.³⁶ The earlier electoral successes of communists, both at local and national levels, provided them with an access to special parliamentary funds. Thus, communists are reported to finance up to 90 percent of their party's electoral spending at the expense of the federal budget.

Luzhkov and communists share views on at least one issue: they are both supporters of strong government interference in the economy. Communists did not make a secret of their economic strategy, which is based upon printing of additional money, reducing of foreign currency circulation in the economy, re-nationalisation of major industries, reinstating of the governmental control over the economy, and strengthening of the military industrial sector. All these measures demand a strong government, which the Russian government since Gorbachev has never been. Twice during 1998 the Communist faction attempted to initiate an impeachment procedure against the president. Since late 1998 they changed tactics and started to use a threat of impeachment as means of bargaining for a reduction of presidential prerogatives. Despite of the fact that at the height of the August crisis the Communist faction manifested itself as the only organised political force in the country, the earlier experience of Kirienko's approval to the post of Prime Minister had clearly shown that, given appropriate offers from those in power, the faction may relatively easy split apart.

In the midst of the August crisis Zyuganov demanded that the President should retire or transfer a significant part of his powers to the Duma. The pressure on Yeltsin to surrender some of his constitutional rights was coming from different sides of the Russian political arena. While communists supported attempts of transferring part of presidential powers to the parliament as means of expanding their own political base in the future power struggle, democrats urged the president to give up some of his power because of the fear that the next president may easily turn Yeltsin's "tsarist" regime into a real dictatorship. On 29 August 1998 Yeltsin responded to these pressures by stating that he will stay in power until next presidential elections take place in mid-2000.

Some of Russian observers suggested that among stimuli that force Yeltsin to remain in office is his personal aspiration to protect himself and his family against possible criminal charges. As one of observers put it, until Yeltsin can still stand he will not resign.

During the course of 1998 Yeltsin�s own state activities included three appointments and three sackings of officials. Despite that, mass media was daily reporting news about the President. Thus, paradoxically, while his own activities were almost at a zero point, there was an effect of Yeltsin's constant participation in the Russian political life.

This "virtual" Yeltsin appeared in Russian politics on the eve of the 1996 presidential elections. In between the two rounds of elections he suffered a massive heart attack and was set to lose the election race; however, he had chosen to present himself as healthy and strong, and capable of leading the country. As a result, Yeltsin's "virtual" image was created through staging interviews that the President never even read³⁷, introduction of weekly pre-recorded radio addresses to the nation, etc. Valentin Yumashev, who until early December 1998 headed the Presidential Administration and was a career journalist, had re-arranged the work of Administration around public relations, making "virtual" Yeltsin a real political figure. The only problem was that "real" Yeltsin during his rare public appearances often destroyed this scenario. Feeling an increasing information and political isolation, which was created around him by his family and close advisors, Yeltsin in the end of 1998 finally decided to destroy it³⁸. Reportedly, his daughter, Tatiana Dyachenko, supported him in this action³⁹.

It seems that, in case Chernomyrdin did succeed in re-establishing himself back at the top of the Russian government, Yeltsin�s retirement - not necessarily just a formal one - was seen as possible development by October-November 1998. Under such scenario Chernomyrdin would become Yeltsin's natural successor. However, the failure of Chernomyrdin and the consequent rise of Primakov forced Yeltsin to continue to cling to power. By the end of 1998 it seemed that the majority of the Russian political elite have quietly agreed to Yeltsin serving his term in office to the end, however only nominally. In these circumstances the major political issue that emerged was that of which politician will be executing presidential prerogatives until the next elections in 2000. Whoever that person will be, he is almost certain to secure best chances in the new elections.

When in September 1998 his nomination attempt to the premiership was met with an unexpected resistance from communists, Chernomyrdin shifted his support base to Russian regional elites. Until recently the latter mostly stood aside from political struggles in Moscow. Since 1995 the most politically influential regional group was exercising its influence through the structures of "Russia is Our Home" movement. However, with the intensification of political crisis in Russia in the late 1998 many regional leaders sought a more active role in federal politics; they did not want to miss out in political bargaining and wished to obtain more rights for themselves. Some of them have gone even as far as to demand a share in the federal gold reserves and threatened to introduce their own regional currencies. Earlier, in July 1998, Krasnoyarsk leader Lebed announced that he was prepared to bring under his regional jurisdiction a nuclear missile division that had not been receiving appropriate federal funding.

In this regard it is important to note that the August crisis had also accelerated the formation of new �oligarchic� structures in Russian regions. For example, in St. Petersburg and Yekaterinburg local governments have installed their control over major regional banks, which provided them with a ready access to revenue streams. In Sverdlovsk region the Nizhnii Tagil Metallurgy Plant had transferred 25 percent of its shares to the local government in exchange for restructuring of its tax debts and paying off the plant's wage arrears. It will not be incorrect to assume that, with the deepening of the crisis, appetites of regional leaders for state property and funds can grow even further.

In September 1998, following a meeting between Chernomyrdin and 30 governors of Russian regions, the parliament's Federation Council, which consists of governors, recommended the Duma to approve Chernomyrdin as the head of the government. Chernomyrdin's political manoeuvres at the time also included consultations with the already weakened 'oligarchs', seen as a natural counterbalance to increasingly influential "regional barons".

In September 1998 some of reports also suggested that former first Deputy Prime Minister Chubais made an attempt to gain President's support to his premiership ambitions. There is little doubt that the Russian business community views Chubais as the best candidate for presidency in 2000. In the months preceding the crisis President Yeltsin had three times offered Chubais the position of Deputy Prime Minister in charge of economic policy but these offers were rejected. However, chances that Chubais will gain a significant popular support remain rather slim. The Russian people blame mainly Chubais - together with Gaidar - for their impoverishment in the post-Soviet period. Hence, at least at present, it is highly unlikely that Chubais will be elected as the next Russian President. However, one can expect that in the course of the future pre-election campaign Chubais may emerge as one of major leaders of re-consolidated 'oligarchs' in their attempt to secure access to power.

In late 1998 it was reported that Chubais, Gaidar, Nemtsov and Kirienko have announced a formation of a liberal coalition with the major aim of uniting their power base in preparation for political struggles that lie ahead. Reportedly, this coalition should include all Russia's small parties that have liberal orientation. Kirienko was expected to head the coalition while Chubais had a role of "general manager", responsible for organising negotiations between various potential participants. According to reports, this coalition received support from several Russian governors. However, even the first days of existence of this coalition have shown that it was subject to serious internal contradictions, when an attempt by Yegor Gaidar and Anatoly Chubais to put the party of Russia�s Democratic Choice at the head of the coalition was met with a growing resistance from other leaders.

In order secure victory in the forthcoming parliamentary and presidential elections this new right-wing coalition is in desperate need of political and financial support. Providing such support has recently become one of major tasks of Chubais. The "reformers", who form the backbone of the new coalition, have recently attempted to establish their control over Russia's major energy companies: Gasprom, the energy monopoly RAO EES and Transneft. The office of the United Energy Systems of Russia (RAO EES), which is headed by Chubais, was turned into a sort of political club of "young reformers". Following his recent retirement from the government Sergei Kirienko made an attempt to get a key position in Gasprom. Earlier, in June 1998, Kirienko's appointee Dmitrii Saveliev became the head of Transneft.

These developments show that, after they lost their positions in the Russian government, the "reformers" have concentrated their efforts on gaining an overwhelming domination in the Russian energy sector. It is no surprise that these efforts are often met with resistance from the new government. Once again accusations in corruption began to leak into the Russian mass media, however most of these accusations were not directed against Chubais, like in 1997, but against his close allies. For example, it was reported that the former head of Duma�s faction of ROH, Sergei Beliaev, had obtained two apartments in Moscow, allegedly through fraud. Report suggested that this happened after Chubais transferred Beliaev from St.Petersburg to Moscow and appointed him as the general director of the Federal Department on Bankruptcy. Other Chubais� allies, according to the same report, have also received state apartments through fraud ⁴⁰.

Reportedly, it was only after the Duma had twice refused to endorse his candidacy to the premiership that Chernomyrdin finally agreed to give his support to another candidate. He advised Yeltsin to nominate Primakov, whose candidacy was proposed by Yabloko leader Grigorii Yavlinsky and was supported by communists, as Russia's new Prime Minister. Inability to force his choice for premier on the Duma came as a second major political defeat for Yeltsin since the late 1980s when he was sacked from the post of Moscow�s party secretary by Gorbachev. And that was the first time in post-Soviet period that Yeltsin had to retreat under Duma's pressure. This was an important development in Russian politics: the events of August-September 1998 have demonstrated that it was no longer enough for a candidate to a key government post to enjoy the support of the President; this person also had to have the support of the majority in the Duma.

A possible explanation of this significant change might lie in the results of polls that throughout 1998 have consistently shown a rapidly declining support base of President Yeltsin. By late 1998 less than 3 percent of the electorate supported the President. That might have forced him not to allow another open confrontation with the parliament and, instead, to seek Duma's approval of major political decisions. Another factor that forced Yeltsin to avoid confrontation is that, reportedly, his regime can no longer rely on an unconditional support from Russia's power structures: according to General Lebed, 97 percent of Russia's army officers will not fulfil even a "written order" aimed at protecting the current regime⁴¹. One can say that the late 1990s' Yeltsin had managed to combine the worst features of some of his most prominent predecessors: the physical disability of Brezhnev and the political weakness of Gorbachev.

One of the reasons why Primakov was invited to head the government was probably because he is not directly affiliated with any political bloc or pressure group. From that point of view we can assume that Primakov�s appointment in September 1998 resulted from a political compromise that was designed to "freeze" the existing situation until the next election. In a sense, his role was to act not as Prime Minister but as Vice-President (this position was abandoned after the events of October 1993). Primakov was easily approved by the Duma as Prime Minister just because he was not been seen as threatening other politicians� presidential ambitions. "Financial Times" called him "the ideal political eunuch"⁴².

The nomination of Primakov as Prime Minister came without any discussion of his economic program. This signified the end of "yeltsinism", a notion coined by Stephen Cohen to describe the policy conducted by Yeltsin. By the end of 1998 it became clear that Yeltsin's regime no longer had an authority or power to continue its confrontation with the leftist opposition. Ironically, it was a politician, who had demonstrated incredible capabilities for undercover political struggles and who managed to make a rising career under Brezhnev, Gorbachev and Yeltsin, appeared in the end to be the most suitable candidate for nomination as Prime Minister.

Primakov's nomination also was a sign of forthcoming changes in Russian government's policies. The influence of 'oligarchs' was set to decline even further, particularly that of Berezovsky⁴³, while the return to government of top Soviet bureaucrats signalled that a possible dramatic change in the strategy of reform was also possible. People like Maslyukov (head of the Soviet Planning Committee during perestroika), Geraschenko (head of the Central Bank in 1989-94 who was sacked after the rouble lost 21 percent of its value in one day in October 1994) and Kulik (head of the Ministry of Agriculture in 1990) were appointed to key economic and financial positions in Primakov's government.

On the other hand, despite a few of old faces, we can say that Primakov's cabinet was mainly formed on a principle of political compromise. For instance, Finance Minister Mikhail Zadornov, a well-known "reformer", became the first ever finance minister to survive a financial crisis: he managed to retain his post from Kirienko's government. The new government also included eight most influential heads of regions. Such a combination of various political forces might make the new Russian government significantly weaker than any of its predecessors. Primakov's cabinet may turn into a sort of a discussion club where industrial, agricultural and regional lobbyists will compete for diminishing state revenues and oppose liberals, now in minority. It was forecasted that Primakov's government would not be able to halt the fall in tax collection and in order to continue paying wages and pensions it will have to increase printing of money. On 23 September 1998 the government, still without announcing any clear economic program, had printed the first portion of 1 billion roubles (US$ 62 million). That immediately caused a further fall in the rouble exchange rate.

Primakov's government faces very complicated tasks. It is expected to protect domestic business and industry from damaging effects of foreign intervention, restore the national banking system and continue with economic reforms. At the same time the government should also support the national currency and avoid inflation in a situation when taxation system is extremely inefficient and access to foreign loans is almost non-existent. A slow progress made by Primakov�s government in elaborating of the program of economic recovery had given rise has to suspicions that the government's approach to Russia�s economic problems was based on a policy of non-interference in domestic economic affairs. Whilst this approach is new for the last decade, it was a dominant feature during the late Brezhnev period. Some observers even argue that Primakov's government has no need to have an elaborated economic policy. Instead, the economy will be designed to work for parliamentary, presidential and other elections⁴⁴. This "election economy" does not need commercial banks to pump money into election funds, as was the case in 1996. It will be the Russian Central Bank that will transfer money through its subsidiaries, which then will fund elections in the regions.

In the years of Chernomydin�s premiership a special decision-making mechanism was created that permits lobbyists to secure their interests. This mechanism started to take a different shape under Kirienko's government, but with Primakov in charge the mechanism does not work as the new Russian Prime Minister tries to re-establish vertical subordination links in state management structures. It is still too early to analyse the consequences of this process.

The government of Yevgeniy Primakov is far from trying to end Russia's "crony capitalism". Rather, it appears to be favouring cronies of its own⁴⁵. Having for several months delayed the adoption of economic measures to overcome the crisis, the new government started its reforms with changing managers of Rosvooruzhenie, the giant Russian state-controlled arms exports company. A number of "court banks" participated in debt swaps that were organised in September 1998 by TsBR, while the latter had sharply cut bank reserve requirements in order to increase bank liquidity. Most of the large banks that the government announced it intends to save have links either to the new government, to new head of TsBR Geraschenko or to the administration of Moscow mayor. For example, SBS-Agro bank was one of the first to be bailed out. However, SBS-Agro's depositors and creditors received little of the money. Most of it instead was used to pay off a loan that SBS-Agro owed to International Moscow Bank, which until September was headed by Geraschenko. In the meantime the government allowed another large bank, Inkombank, to collapse despite the fact that it serviced the second largest retail base in the country.

Recently the Russian government announced that it intends to bail out, among others, Menatep and Most banks⁴⁶. The former bank is known to have strong supporters in Russian power structures, but it has few depositors and no regional network. On the other hand, Most bank's extensive media holdings make it invaluable ally in the approaching parliamentary and presidential elections. Another recent move on part of Primakov's government included purchases of controlling shares in Promstroibank and SBS-Agro, which are now being re-designed to become a basis for state industrial and agricultural banks.

In November 1998 it was announced that the new Russian government decided to create a new body, the Agency for Restructuring of Credit Organisations. The aim of this agency is not to supervise bankruptcies of banks, rather it is to establish control over banks through obtaining their shares⁴⁷. These shares will be exchanged for new state bonds and not bought. These measures are quite reminiscent of the earlier Soviet-type bureaucratic control over the national financial system.

Primakov's government had also established firm controls over the exchange rate through a variety of channels. For instance, Russian current regulations stipulate that only importers have the right to buy foreign currency. At a time when exporters were obliged to sell part of their earned foreign currency, volumes of imports have dropped drastically. Thus, by the late 1998 it was TsBR that became the sole large buyer of foreign currency in Russia.

In conclusion it can be noted that although the events in Russia over the last few months following the 1998 August crisis can often be interpreted as a result of a "conspiracy theory", it was the internal nature of Yeltsin's regime that had largely predetermined this path of political developments. Throughout its modern history Russia always had a strong tendency toward formation of various political clans. When Yeltsin built his new "tsarist" empire where favourites were going one after another, a kind of "undercover" politics became dominant in Russia. A development when following privatisation of state property the state itself was privatised as well, had greatly facilitated this change.

Peter Shearman, "The Current Political Situation in Russia and Possible Scenarios of Future Development" in: Leslie Holmes (ed.), The Russian Crisis and its Impact on Australia. Melbourne: Contemporary Europe Research Centre, September 1998, p.22.