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RUSSIA IS THE LARGEST of the fifteen geopolitical entities that emerged in 1991 from the Soviet Union. Covering more than 17 million square kilometers in Europe and Asia, Russia succeeded the Soviet Union as the largest country in the world. As was the case in the Soviet and tsarist eras, the center of Russia's population and economic activity is the European sector, which occupies about one-quarter of the country's territory. Vast tracts of land in Asian Russia are virtually unoccupied. Although numerous Soviet programs had attempted to populate and exploit resources in Siberia and the Arctic regions of the Russian Republic, the population of Russia's remote areas decreased in the 1990s. Thirty-nine percent of Russia's territory but only 6 percent of its population in 1996 was located east of Lake Baikal, the geographical landmark in south-central Siberia. The territorial extent of the country constitutes a major economic and political problem for Russian governments lacking the far-reaching authoritarian clout of their Soviet predecessors.

In the Soviet political system, which was self-described as a democratic federation of republics, the center of authority for almost all actions of consequence was Moscow, the capital of the Russian Republic. After the breakup of the Soviet Union in 1991, that long-standing concentration of power meant that many of the other fourteen republics faced independence without any experience at self-governance. For Russia, the end of the Soviet Union meant facing the world without the considerable buffer zone of Soviet republics that had protected and nurtured it in various ways since the 1920s; the change required complete reorganization of what had become a thoroughly corrupt and ineffectual socialist system.

Under those circumstances, Russia has undergone an agonizing process of self-analysis and refocusing of national goals. That process, which seemingly had only begun in the mid-1990s, has been observed and commented upon with more analytic energy than any similar transformation in the history of the world. As information pours out past the ruins of the Iron Curtain, a new, more reliable portrait of Russia emerges, but substantial mystery remains.

In a history-making year, the regime of President Mikhail S. Gorbachev of the Soviet Union was mortally injured by an unsuccessful coup in August 1991. After all the constituent republics, including Russia, had voted for independence in the months that followed the coup, Gorbachev announced in December 1991 that the nation would cease to exist. In place of the monolithic union, there remained the Commonwealth of Independent States (CIS--see Glossary), a loose confederation of eleven of the former Soviet republics, which now were independent states with an indefinite mandate of mutual cooperation. By late 1991, the Communist Party of the Soviet Union (CPSU--see Glossary) and the Communist Party of the Russian Republic had been banned in Russia, and Boris N. Yeltsin, who had been elected president of the Russian Republic in June 1991, had become the leader of the new Russian Federation.

In the late 1980s, Yeltsin's appeals for political reform gained him the enmity of the communist hierarchy, including Gorbachev, but he won the support of a Russian public whose self-expression had been liberated by Gorbachev's own policy of glasnost (literally, public voicing--see Glossary). In that period, the atmosphere of Russia, especially its main cities, Moscow and Leningrad, was one of expectation that significant political changes finally would occur after the sclerotic decades of the Brezhnev regime (1964-82). The first years of Yeltsin's presidency, which began with an overt challenge to the Soviet Union's authority over Russian affairs, brought a surge of activity that promised economic and political reform and an end to the economic stagnation and social malaise of the 1980s. Both Russians and Westerners hoped that Russia could make a short, painless transformation to democratic rule and free-market economics. Although events of the first five post-Soviet years provided some reasons for optimism, all observers soon realized that whatever transformation Russia was to experience would require much more time, and would yield much less predictable results, than initially expected.

At the time it became independent, the Russian Federation included nineteen autonomous republics, ten autonomous regions, and one autonomous oblast, each designated for a particular ethnic group. The ethnically Russian population was (and remains) the largest group in all but a handful of the republics and autonomous regions; most of the exceptions, where the local ethnic groups constitute a majority, are located in the North Caucasus.

In 1989 the Baltic republics' declarations of sovereignty within the Soviet Union began a cascade of similar declarations by jurisdictions within Russia. In the second half of 1990 alone, ten of Russia's autonomous republics declared sovereignty. When Russia became an independent state, perceptions of Moscow's weakness further encouraged separatist movements, which in turn prompted a long-term campaign by the Yeltsin government to maintain the federation intact. Although some experts predicted that the Russian Federation ultimately would suffer the same fragmentation as the Soviet Union, little evidence of such an outcome has been seen in the first five years of the post-Soviet era.

In 1992 Moscow began the struggle to preserve the federation by inducing all but two autonomous republics (Chechnya and Tatarstan) to sign the Federation Treaty defining the respective areas of jurisdiction of the national and regional governments. The treaty included definitions of sovereignty over natural resources and other economic assets. Since the treaty was signed, Moscow's hegemony has been threatened in several other instances, the most notable being the Republic of Chechnya's fulfillment of its 1991 declaration of independence by a coup against the republic's Russian-controlled government in 1993. Chechnya's defiance and the hapless military response that Russia initiated against the republic in 1994 encouraged other regions to seek more power. In most cases, including oil-rich Tatarstan and diamond-rich Sakha (Yakutia), the Yeltsin government has signed compromise bilateral treaties assuaging local demands, which are mostly economic. Some of Russia's fifty-five lesser jurisdictions--the six territories and the forty-nine oblasts--have made similar demands. Because the federal government has not been able to enforce its policies on a number of issues, the jurisdictions have taken varying approaches to economic and political reform, creating a patchwork effect that has inhibited interregional cooperation.

The military failure in Chechnya was the most obvious indication of a grave overall decline in post-Soviet Russia's military establishment. The Soviet military earned society's gratitude by its performance in the Great Patriotic War (as World War II is commonly called in Russia), a costly but unified and heroic defense of the homeland against invading Nazi armies. In the postwar era, the Soviet military maintained its positive image and budgetary support in good part because of incessant government propaganda about the need to defend the country against the capitalist West.

The demise of the Soviet Union also ended much of the threat of military confrontation between Russia and the West that had characterized the Cold War. Already in the mid-1980s, however, Soviet military doctrine had begun shifting to a more defensive posture in recognition of the country's economic limitations, even as Soviet occupation of the Warsaw Pact (see Glossary) nations and of Afghanistan continued. Beginning in 1988, the Soviet military establishment suffered a series of major blows. The military operation in Afghanistan, which had little success against fervid guerrilla forces, was declared a failure in 1988, and Soviet forces withdrew after nearly ten years of combat. In 1989 the Warsaw Pact alliance began to disintegrate as all the East European member nations rejected their communist governments; the alliance dissolved in 1991, and by 1994 all Russian forces had left Eastern Europe.

The third blow, the end of the Soviet Union itself, required withdrawal of troops stationed in the other fourteen republics; in this process, much equipment and weaponry was left behind and claimed by the newly independent states. The successive return of large numbers of troops into Russia after each of these three events caused an enormous logistical problem for the military; furthermore, the morale of the institution was seriously eroded by withdrawals of unprecedented magnitude from regions assumed to be permanent parts of the Soviet domain. At the same time, serious examples of corruption were exposed at the highest command levels of the armed forces.

In 1992 the Russian Federation inherited the bulk of the Soviet Union's armed forces as well as all of their problems. In the early 1990s, there were new ramifications of the morale and command problems that had surfaced earlier. In a new social environment of permissiveness and diversification, increasing numbers of Russia's youth rejected military service as a patriotic duty, many top individuals in the junior officer corps resigned because of poor pay and housing, and the incidence of crime increased significantly. At the same time, corruption and politicization destroyed the unity that had characterized the senior officer corps during the Soviet era. These changes all occurred as the need for a new set of national security guidelines became increasingly evident. Within a few years, both the geopolitical and the budgetary conditions of Russia's military had changed dramatically without appropriate adjustments in military doctrine. Although the size of the military was reduced between 1992 and 1996 from about 2.8 million personnel to about 1.5 million, reductions were disproportionately high in the enlisted ranks, leaving a bloated officer corps. In 1996 both the military doctrine (which was updated fragmentarily in 1993) and military equipment still reflected the Soviet-era priority of large-scale mechanized land war and/or nuclear war to be fought on the continent of Europe.

In 1996 elements of a new military doctrine appeared, but fundamental conflict remained between reformers and hard-liners in the policy-making establishment. The strong positions taken by the opposing sides suggested that enacting a comprehensive new doctrine would involve a long struggle. Despite the diminished capability of Russia's economy to support the military, hard-liners insisted that major reductions would damage national security. As budgetary support of routine military readiness has shrunk drastically in the mid-1990s, calls for large-scale reform have intensified. Among the main reform elements cited are downsizing the armed forces, shifting their emphasis to mobile warfare, eliminating much of the corrupt and flabby corps of senior officers, relying more heavily on contract volunteers rather than conscripts, and discarding the concept of military parity with the United States. In July 1996, the State Duma (the lower house of the Russian parliament) began hearings on reform measures. In December the Duma recommended the formation of a federal department to set military reform guidelines through 2005, together with a 25 percent increase in the military budget.

The condition of the military forces remains an important part of Russia's national self-image. The Chechnya conflict, the first post-Soviet test of those forces, revealed shocking insufficiencies even in elite units. In mid-1996 the dismissal of Minister of Defense Pavel Grachev, upon whom the most blame for Chechnya had been heaped, produced no visible improvement. In August 1996, the sudden loss of the Chechen capital of Groznyy, from which Russian forces had driven the Chechen guerrillas in 1995, forced the withdrawal of Russian forces under the terms of the cease-fire that followed.

In the second half of 1996, ultimate responsibility for military policy remained balanced uncertainly between civilian and military authorities, as it was when Grachev was minister of defense. In November 1996, a call for a new military doctrine by Yeltsin's civilian Defense Council met stiff resistance from the Ministry of Defense.

Grachev's successor, Igor' Rodionov, inherited a force with plummeting morale, gravely deteriorating matériel support, minimal training, and no clear doctrine. In the second draft call of 1996, an estimated 37,000 men out of a target number of 215,000 conscripts failed to report. This was the largest recorded episode of draft dodging since the establishment of the Soviet Union. The budget passed in January 1997 added only token amounts to the 1996 allotment of US$19 billion. The budget provided for only about 38 percent of the Ministry of Defense's budget request and made no allowance for inflation. The 1997 budget package caused Rodionov to curse the Ministry of Finance as Grachev had, intensifying tensions among the "power ministries" of the Government (cabinet). Meanwhile, in the last months of 1996 the pay arrears of the Ministry of Defense mounted steadily, and there were rumors that military strike committees had been formed. Already in August, an estimated US$2.8 billion was owed to Russia's military personnel. Rodionov also repeated Grachev's complaint that military units of the internal security agencies received funding that should go to the Ministry of Defense. The exact troop levels of those units are unknown, but in the second half of 1996 some estimates exceeded 1 million.

Rodionov predicted that the grandiose plans of Yeltsin and others for military restructuring and modernization would be frustrated without significant expenditures in the transition period. The plans included large-scale force reduction, a new military doctrine matching Russia's less stressful post-Cold-War geopolitical position, and possibly an all-volunteer force. In January 1997, the Ministry of Defense submitted a reform plan whose first step was increased funding. The Defense Council submitted a rival, long-term plan extending beyond 2005 and calling for 30 percent reductions in defense and non-defense troop levels as the first reform step, citing the country's low financial resources. The conflicting emphasis of the two plans exacerbated the existing disagreements in the defense establishment, specifically between Rodionov and Defense Council chief Yuriy Baturin, over the direction of reform.

Meanwhile, accusations of corruption and incompetence in the military establishment continued, with Duma Defense Committee chairman Lev Rokhlin, a retired general, levying the most serious charges. Those charges combined with the military's abject failure in Chechnya to further erode the authority of the Ministry of Defense under Rodionov. In December 1996, Yeltsin forced Rodionov to resign his commission in order to move the ministry toward civilian rather than military control.

As Russia's military deteriorated, the arms export activities of its defense industries continued to grow. In 1995 Russia exported more arms to developing countries than any other producer; China was its best customer. Total 1995 sales were estimated at US$6 billion, an increase of 62 percent over 1994. At the end of 1996, defense authorities announced that foreign arms sales would play a prominent role in financing military reform in coming years. In early 1997, Russia angered the West by selling S-300 missile systems to the Republic of Cyprus and by selling a third Kilo-class diesel submarine to Iran.

Some of the most visible domestic products of the arms industry suffered production delays in 1996. In November construction began on the Yuriy Dolgorukiy, the first in the new Severodvinsk class of strategic missile submarines described as superior to any existing model and expected to carry Russia's sea-based nuclear missiles after 2000. Plans had called for three such boats to go into production in 1996. The Petr Velikiy, a powerful, heavily armed cruiser whose keel was laid in 1986, finally took its maiden voyage in October 1996 after years of production delays. In March 1997, the Moscow Aviation Production Association (MAPO) postponed serial production of an advanced multifunctional fighter, targeting instead the MiG-35 fighter destined for overseas sales.

The agencies of internal security have fared better than the military in the post-Soviet era. Throughout the Soviet period, these agencies were among the most firmly entrenched and respected national institutions. A succession of internal security agencies, ending with the Committee for State Security (Komitet gosudarstvennoy bezopasnosti--KGB; see Glossary), struck fear in the Soviet population by thoroughly penetrating all of society and launching periodic purges (the most violent of which occurred in the 1930s) against elements of society deemed harmful to the socialist state.

In the post-Soviet era, internal security agencies generally have received more solid support from the Yeltsin government than the armed forces, although specific agencies have been favored. The Federal Security Service (FSB), the most direct successor to the KGB, has a broad mandate for intelligence gathering inside Russia and abroad when national security is threatened, and no concrete governmental oversight is prescribed in legislation. Human rights advocates in Russia and elsewhere, sensitive to the precedent of unbridled KGB power, have criticized the direct presidential control of internal security agencies such as the FSB, and human rights violations have been documented. Armed units of the FSB and the Ministry of Internal Affairs (MVD) were heavily involved in the Chechnya campaign.

Russia's still-powerful internal security agencies also were hit by scandal in 1996 when the former financial head of the Federal Agency for Government Communications and Information (FAPSI) was imprisoned by its sister agency, the FSB, for embezzling large sums from the FAPSI budget. Although the affair received no official acknowledgment, the independent press reported a major power struggle between powerful successor agencies of the KGB. Such a scenario would continue a series of rearrangements of the former KGB agencies that have occurred in the 1990s because of political power struggles rather than security considerations.

Rampant, well-publicized corruption in the security agencies has eroded public confidence in all of Russian law enforcement. In July 1996, the Ministry of Internal Affairs (MVD) reported that 1,400 employees of the regular police (militia) had been arrested in 1995 for various types of criminal activity, including participation in crimes by criminal organizations of the mafiya. That report was the result of the MVD's Clean Hands Campaign, a highly publicized public-confidence program begun in 1995 to purge law enforcement agencies of dishonest members. But, according to most accounts, the 1995 arrests removed only a very small part of Russia's internal security corruption.

Russia has experimented cautiously with Western-style jurisprudence and penal reform. In the mid-1990s, jury trials were introduced in some regions, and the rights of accused persons and prison inmates were stipulated more concretely. Nevertheless, major elements of the Soviet system remain in the jurisprudence of the Russian Federation. For example, procurators (public prosecutors) still have both investigative and prosecutorial functions, and expansion of the jury system has met substantial resistance among entrenched Soviet-era judges and procurators. In addition, prison conditions have deteriorated substantially because Russia's crime wave has increased the prison population but funding is not available for new facilities. In early 1997, more than one-quarter of the prison population was awaiting trial, and pretrial detention lasted as long as three years for some individuals. Russia's procurator general, Yuriy Skuratov, reported that his office had been overwhelmed in 1996 with 1.2 million court cases, for which it had only about 7,000 investigators. He noted that the same trend was continuing in 1997.

After many delays and amendments, a new Criminal Code went into effect on January 1, 1997. An estimated 150,000 criminal cases were expected to require review based on the new code, and many prisoners will be released because the laws under which they were convicted no longer exist. A separate criminal correction code defining conditions in the prison system was scheduled to go into effect in July 1997.

Compounding Russia's other problems are deteriorating environmental conditions, the extent of which became clear only gradually during the 1990s. Among the most serious hazards in Russia are pollution of ground water and bodies of water in most of European Russia; air pollution from the venting of unprocessed industrial by-products; large concentrations of waste chemicals from industry and agriculture; and actual and potential radiological pollution from civilian and military nuclear installations.

In August 1996, the Bellona Foundation of Oslo, long a vocal critic of Russia's nuclear waste procedures, issued a damning report on the threat posed to Arctic regions by Russia's nuclear waste disposal practices and at least thirty-six decommissioned nuclear submarines at anchor near Murmansk with their reactors on board. Bellona described the Murmansk region as having the world's largest concentration of active and defunct nuclear reactors, many of which are not maintained or disposed of properly. According to the report, the FSB obstructed the foundation's investigation and imprisoned Aleksandr Nikitin, the retired Russian naval officer who was a key author of the report. As Nikitin's trial was delayed repeatedly, his case attracted international protests.

Meanwhile, the interdepartmental Commission for Ecological Safety, headed by senior environmental authority Aleksey Yablokov, continued releasing shocking statistics about Russia's environmental quality. For example, in 1996 one in five tap-water samples failed to meet public health chemical standards, and about 40 percent of sewage was being dumped untreated into bodies of water, with Moscow and St. Petersburg among the regions most affected. In the second half of 1996, Yablokov lobbied Yeltsin unsuccessfully to expand the ecological safety commission and its funding.

Russian environmentalists won a battle in December 1996 when a regional referendum soundly rejected completion of the Kostroma Nuclear Power Station, on which construction had been suspended after the Chernobyl' disaster of 1986. This was Russia's first referendum on such an issue; the 59 percent turnout made the vote legally binding. In February 1997, the Republic of Sakha announced plans to conserve one-quarter of its vast Siberian territory, including the world's largest tract of virgin forest, protecting several endangered species and the shrinking indigenous population of Evenk nomads. That plan bypassed national authorities--an increasingly frequent trend in environmental and other matters. The Sakha government received a support grant directly from a Swiss environmental organization.

The "social umbrella" of the Soviet Union's socialist system, which nominally had guaranteed all citizens employment, health care, child care, pensions, and universal, high-quality education, also encountered problems. By the 1980s, many of the more than 200 million citizens covered by the umbrella began receiving fewer benefits or benefits of lesser quality. The Soviet education and health systems, which offered top-quality service only to the country's political, scientific, and cultural elite, were undermined by the infrastructural and organizational failures inherent in such centrally planned systems. The Soviet concept of guaranteed employment eroded the national economy by encouraging slipshod labor and malingering.

In the 1990s, the state's social welfare system retained the bureaucratic complexities of the Soviet era, but it did not keep pace with the needs of society. As runaway inflation devalued the fixed payments of the pension system, many citizens depending on fixed incomes fell below the official poverty line, which in late 1996 was about US$67 per month. In 1996 an estimated 30 percent of those with fixed incomes and about 24 percent of the total population were in that category. The government's failure to index welfare programs also reduced the value of a wide variety of other entitlements that had provided Soviet workers with substantial savings in the cost of living. Nevertheless, Soviet-era programs such as maternity leave, child care, free medical facilities, and housing subsidies remained substantially unchanged in the mid-1990s, continuing expectations that increasingly strained the federal budget.

Reforms such as pension indexation and differentiation of individual contributions to pension funds were only beginning to appear in the mid-1990s. By that time, the government's inability to collect taxes and other obligated funds had had a major impact on social programs. In the fall of 1996, an estimated US$3 billion in pension payments were overdue. At that point, the Pension Fund, which is administered by the Ministry of Social Protection, was owed US$8.5 billion by the enterprises that are the main contributors. The federal budget also owed money to the fund, which by mid-1996 had exhausted its commercial bank credits by taking loans to make pension payments.

Russia's health care system also deteriorated substantially in the 1990s. Equipment and medicines are in increasingly short supply, aging facilities have not been replaced, and existing facilities often are inaccessible. Medical personnel generally are not trained as rigorously as their contemporaries in the West, and chronic failures to pay doctors and nurses have exacerbated shortages in those professions. The 1997 national budget allocated US$1.6 billion for health, an increase of US$158 million over 1996, but most of the new money was targeted for medical centers in large cities. The 1997 figure was 2.6 percent of the gross domestic product (GDP--see Glossary), compared with the World Health Organization's recommended minimum share of 5 percent.

Failures in health care are one aspect of an increasingly grave health crisis afflicting the Russian population as a whole in the 1990s. Other elements of the crisis include widespread and acute environmental pollution of various types, which government programs and nongovernmental "green" organizations have not been able to ameliorate; the continued heavy use of tobacco and alcohol and a growing narcotics addiction problem; and poor hygiene and nutrition practices among large portions of the population.

In the first ten months of 1996, confirmed cases of human immunodeficiency virus (HIV) were four times more numerous than in all of 1995, with drug addicts accounting for about 70 percent of cases. Although the official estimate of HIV cases was fewer than 2,000 in 1996, other estimates placed the number at ten times that many. The Ministry of Health reported that only 50,000 of Russia's estimated 2 million drug addicts were under treatment for their addiction in 1996. In 1996 health experts identified alcoholism as the number-one cause of premature death in Russia, a situation exacerbated by the estimated 68 percent of alcohol products that contain foreign substances. By 1995 Russia's average life expectancy had fallen to only fifty-seven years for males and seventy-one for females, and natural population growth has been negative since 1992. In the first nine months of 1996, the population showed a net decrease of 350,000, dropping to 147.6 million according to the State Committee for Statistics.

Russia's education system has suffered from the same shortages and lack of support as its health system. And education, accorded high value in Soviet society, seems to have lost some of its esteem in a fragmented Russian society where many traditional institutions are viewed with unprecedented skepticism. In the 1990s, the centralized, rigid Soviet education system has given way to a system that gives localities substantial autonomy in shaping curricula and hiring teachers. This opportunity for creativity has been hampered, however, by two conditions: because many Soviet-trained Russian educators do not understand individual initiative and autonomy, many schools have perpetuated the rote memorization methods of the past; and, as in other aspects of Russian social policy, funding for personnel and infrastructure has been woefully inadequate. Teachers, always underpaid in the Soviet system, have been impoverished by the Russian system, and many have left the profession since 1992. In this atmosphere, private schools have begun to offer creative curricula to students who can afford to eschew public schooling. According to Deputy Prime Minister Viktor Ilyushin, by October 1996 education and culture had received only 65 percent and 30 percent, respectively, of the 1996 budget funds allotted to them. In late 1996 and early 1997, the highest proportion of striking workers were teachers.

Beginning in the late 1980s, religion assumed a more important role in the lives of many Russians, and in the life of the Russian state as well. Russian Orthodoxy, the dominant religion of Russia since the ruler Vladimir accepted Christianity in A.D. 988, was subservient to the state from the time of Peter the Great (r. 1682-1725) until 1917; nevertheless, it exerted a powerful influence on the spiritual lives of most Russians. In the Soviet period, the activities of the church were further restricted as most churches and monasteries were closed and religious observances strongly discouraged.

In the late 1980s, the Gorbachev regime began to restore the church's property and rights; official observance of the millennium of Russian Orthodoxy in 1988 was a watershed event in that process. Beginning in 1992, the Russian Orthodox patriarchate, which had been restored in 1917 only to be repressed for the next seventy years, assumed growing influence in state as well as spiritual affairs. Many churches were built and restored, and in the early 1990s millions of Russians returned to regular worship. However, by early 1997 Orthodox Russians attended church at about the same rate as religious believers in West European countries. In the 1990s, politicians have eagerly sought the opinion of the church on most important issues, and in 1996 even the communist presidential candidate, Gennadiy Zyuganov, made an appearance with Patriarch Aleksiy II an important element of his campaign.

Other religious groups also have enjoyed relative freedom in the post-Soviet period, with some limitations. Mainstream Protestant, Roman Catholic, and Muslim groups are fully accepted by the state and the Orthodox Church, but the Orthodox hierarchy often has used its dominant position to discourage or block the activities of their congregations. The new freedom of the Gorbachev era brought a wave of Western evangelical groups whose proselytizing the Orthodox hierarchy viewed with alarm and hostility. In mid-1996 the State Duma passed legislation establishing a state committee to monitor the activity of such groups. The law was introduced by nationalist allies of the Orthodox Church and opposed by democratic factions as unconstitutional. The Jewish community, whose religious and cultural activities have blossomed in Russia in the 1990s, still experiences subtle forms of discrimination.

The problems of post-Soviet Russia also are based directly in economic circumstances. Some of the reasons for Russia's uneven progress are found in the legacy of the Soviet era, others in post-Soviet economic policies. For the majority of Russian citizens, the ballyhooed economic reforms of the 1990s did not improve the quality of life; indeed, in 1996 the "shock" of Russia's transition to a free-enterprise system seemed to be intensifying rather than subsiding, as unemployment figures rose and more Russians slipped below the official poverty line. In the first half of 1996, the number of registered unemployed workers increased by 16 percent, totaling 2.7 million--but a much higher number of Russians remained unemployed and failed to register for meager state benefits. According to an official report, average real incomes decreased by about 40 percent between 1991 and October 1996.

Russia's society has become increasingly divided according to economic categories. As the majority of Russian citizens struggle to remain above the poverty line, a small minority have prospered through high-risk economic ventures that often involve connections with the mafiya, Russia's pervasive network of organized criminal organizations. Members of the successful minority increasingly are distinguished from the majority of society by conspicuous consumption, which has engendered strong feelings of resentment. Another type of post-Soviet success story is demonstrated by former members of the Soviet official elite, the nomenklatura, who have used Soviet-era connections to gain access to financial resources and influential enterprise positions in the new system. By 1997 experts had identified a new oligarchy--the post-Soviet entrepreneurs who have built personal empires and strong ties with the government at the expense of their fellow Russians. Russian society also is increasingly divided by generations. Older Russians have found adapting to the complexities and challenges of post-Soviet society much more difficult than have their younger compatriots, so the former often preserve as much as possible of their former lives, garnished with nostalgia for an idealized Soviet past.

Moscow has become the center of Russia's economic activity, both personal and corporate, far outstripping St. Petersburg, which in the Soviet era was the more cosmopolitan city. Many foreign investors have concentrated their activity in Moscow, where all of Russia's large banks are headquartered and where the energetic Mayor Yuriy Luzhkov has fostered rapid commercial expansion with active government participation. Meanwhile, the luxurious life of the new Moscow upper class has spread very little to the hinterlands.

The increasing availability of land and materials has enabled some individuals to escape dependency on the old housing subsidy system (which nevertheless remained active in 1997). In the transition to a fully privatized housing system that began in 1992, the scarcity of resources and high inflation drove private housing prices beyond the reach of most Russians; in the mid-1990s, the slow, uneven progress of housing reform meant the continued existence of long waiting lists and very crowded housing conditions, especially in the cities.

The Soviet and Russian economies have been supported by one of the richest supplies of natural resources in the world. Fuels, minerals, timber, and a well-educated labor force always have been strong principal assets of industry. But the location of Russia's raw materials often has presented a transportation problem. As the industrial centers of European Russia used up nearby fuels and other resources, the more distant supplies of Siberia have become critical but expensive alternatives. The sheer volume of available raw materials encouraged tremendous waste in the Soviet system; central planning took into account neither the possibility of running out of materials nor the grave environmental damage caused by uncontrolled exploitation.

Economic policy in the Soviet Union was the exclusive domain of planners in the central government, whose quotas and distribution decisions ruled virtually all economic activity in Russia and the other Soviet republics. Resource apportionment in that system favored heavy industry and the military-industrial complex at the expense of consumer production, token revival of which was attempted sporadically beginning with the regime of Nikita S. Khrushchev (in office 1953-64). The services sector remained underdeveloped, and agricultural production policy precluded private landownership and relied almost entirely on collective farms (see Glossary) and state farms (see Glossary). Central allocation of resources and price establishment created an inflexible economic system whose production and consumption sides had no relation to each other. The basic unit of planning, the five-year plan (see Glossary), set long-term goals whose basis in real economic conditions often was nonexistent by the end of the period. The Soviet planning system also produced a substantial class of state bureaucrats, many of whom preserved their influential and highly profitable positions in state enterprises (and hence their stubborn opposition to economic reform) well into the post-Soviet era.

The Soviet state also had full control of foreign trade. The vast majority of Russia's overseas commercial activity was conducted with the nations of the Community for Mutual Economic Assistance (Comecon--see Glossary), all of which followed the Soviet model of the centrally planned economy, and all of which were governed by Comecon's artificial system for allocation of production responsibilities. This closed commercial system included a high percentage of barter arrangements. The system was supplemented by equally regimented commercial links among the republics of the Soviet Union. An important result was that Russian products were exposed to very little genuine competition in world markets, despite periodic efforts to cultivate commercial relationships outside Comecon.

By 1980 the Soviet economy had entered a decline from which it never was to emerge. It became obvious that the strong central controls that traditionally guided economic development had failed to promote the creativity and productivity urgently needed in a highly developed, modern economy. As one of the two world superpowers, the Soviet Union was acutely conscious that the West, and especially the United States, was bypassing it in many areas outside the military field. So, beginning in the mid-1980s, Soviet leader Mikhail S. Gorbachev (in office 1985-91) experimented with unprecedented economic reforms, including limited application of free-market principles, in a policy called perestroika (rebuilding--see Glossary). However, the Gorbachev concessions were too small and too late, so the system's inherent flaws remained. The standard of living and productivity both continued to fall until the Soviet Union dissolved and central planning was discredited in 1991.

As president of the Russian Republic, Boris Yeltsin already had advocated substantial economic reform prior to Russia's independence, in order to begin resurrecting Russia's economy from the crisis of the last Soviet years. For the new Russian Federation, the Yeltsin administration set ambitious economic reform goals in 1992: strict limitation of government spending to cut inflation; redirection of state investment from the military-industrial complex and heavy industry toward consumer production; a new tax system to redistribute financial resources to more efficient sectors; cutting of government subsidies for enterprises and eliminating government price controls; and lifting of government control of foreign trade. Privatization of the major sectors of production, still virtually state monopolies in 1991, was another primary goal.

In 1992 worsening economic conditions brought a confrontation with the Supreme Soviet (legislature) over economic policy. The clash forced Yeltsin's dismissal of reform Prime Minister Yegor Gaydar and a general modification of reform goals under Gaydar's pragmatic successor, Viktor Chernomyrdin. At that point, failing enterprises still received easy credit from the banking system and from other enterprises--a continuation of Soviet-style fiscal management and a crucial flaw that began to be corrected only in 1995.

Many of the goals of the Yeltsin program were met at least partially in the first five post-Soviet years, depending on which statistics are used to define economic trends. Foreign trade has been liberalized significantly, and the list of Russia's trading partners now is dominated by West European rather than East European and former Soviet countries. The course of foreign investment has been uneven. Although Western and Japanese firms have shown great interest in joint ventures with Russian enterprises, Russia's unfinished and uncertain commercial and legal infrastructure has limited foreign participation, and protectionist laws restrict foreign activity in industries such as communications and automobiles. International lenders such as the International Monetary Fund (IMF--see Glossary), the Paris Club of Western government lenders, and the London Club of international commercial banks have provided substantial aid, with the caveat that Russia must improve economic indicators such as its inflation rate and budget deficits. In 1993 and 1994, soaring inflation and government deregulation of prices robbed consumers of much of their purchasing power before a government tight-money policy brought inflation under control in 1995 and 1996. In December 1996, prices rose by 1.4 percent, although wage arrears made that figure irrelevant for many Russians.

The Yeltsin privatization program began with small enterprises, a large proportion of which were in private hands by 1995. Sales of larger enterprises, accomplished in several phases, encountered substantial difficulties, however. In 1995 allegations of corruption slowed the process, as did persistent opposition from the antireform State Duma factions. Privatization was virtually halted during the 1996 presidential election campaign, but in July 1996 the administration announced new goals and a reformed system for ownership transition. Initially positive, Western evaluations of Russia's privatization program were tempered in 1996 by continued government favoritism toward former state enterprises, by the sale of investment shares to banks and other institutions with close state connections rather than to the public, and by the program's distinct slowdown in 1996. In October 1996, the government had collected only 14 percent of the year's targeted privatization revenue of US$2.2 billion. In November the planned public sale of stock in two major state-owned telecommunications firms, Rostelekom and Svyazinvest, was canceled in favor of stock sales to two large banks that had financed Yeltsin's 1996 campaign, heralding a new privatization scandal. The 1997 national budget set a privatization income goal for 1997 at US$1.1 billion, but already in February Vladimir Potanin, head of the privatization revenue collection commission, expressed doubt that the goal could be met.

Tax collection remained a major problem for Russia as of early 1997. Although some nominal tax reforms were put in place, tax collection remained inept, and the system still failed to promote private initiative or foreign investment. Despite constant government pleas, promises, and reform blueprints, and despite substantial pressure from the IMF, in 1997 taxation remained the main obstacle to budgetary solvency.

The government lost large amounts of tax revenue because unofficial and illegal commerce is widespread and because the State Taxation Service inspires so little respect from legitimate businesses. According to an official 1996 estimate, only 16 percent of Russia's 2.6 million firms were paying taxes regularly, and at least twice that number paid no taxes at all. On three different occasions, the IMF postponed installments of a US$10.1 billion loan to Russia because of the taxation problem--twice in the second half of 1996 and again in February 1997.

When the official tax shortfall reached US$24.4 billion in October 1996, the government began televising appeals for tax-law compliance. A new emergency tax commission, headed by Prime Minister Chernomyrdin and Chief of Staff Anatoliy Chubays, targeted seventeen of Russia's largest companies for bankruptcy proceedings if their huge tax arrears were not paid immediately. Among the most delinquent enterprises were three subsidiaries of Chernomyrdin's extremely wealthy former company, the State National Gas Company (Gazprom), which reportedly owed US$2.1 billion. Many large enterprises failed to comply, and much of Russia's extensive so-called shadow economy remained beyond the reach of the commission. Critics characterized the emergency commission as a stopgap tactic that delayed fundamental reform in the tax system. According to government statistics, in 1996 some 20,000 collection orders were issued for back taxes amounting to US$15.7 billion; the orders yielded only US$3.8 billion to the state budget. Early in 1997, Minister of Finance Aleksandr Livshits drafted a new tax code that would have saved the government an estimated US$30 billion annually. But the plan's anticipated closing of profitable loopholes attracted sharp resistance. In February 1997, Minister of Internal Affairs Anatoliy Kulikov, known as a hard-liner, was given the task of cracking down on tax violators. Yeltsin removed Livshits from his position during the Government reorganization of March 1997.

In March the Government threatened bankruptcy proceedings against a new group of ninety nonpaying enterprises, many of them quite large, hoping to encourage public sales of shares that would dislodge Soviet-era managers in favor of outside investors. At the same time, privatization chief Al'fred Kokh was given control of the inept State Taxation Service.

Besides the chronic tax collection failure, institutional remains of the Soviet era also continue to plague economic progress. In many large plants, the economic reforms of the early 1990s left control with the same managers who had run the plants for the state. In the post-Soviet years, managers have taken advantage of Russia's new free-market atmosphere, and the lack of effective commercial legislation, to line their own pockets--often in cooperation with criminal organizations--while paying little attention to plant productivity. In 1996 the Government increased subsidies to some major automobile and defense plants, reversing the direction of privatization and further diminishing incentives.

Another obstacle to economic stability is the pervasive influence on economic activity of the mafiya--as commonly used in Russia, a term including gangsters, dishonest businesspeople, and corrupt officials. In the 1990s, Russia is suffering the effects of an increasingly prosperous national network of criminals who extort protection money from an estimated 75 percent of businesses and banks. Individuals refusing such payments often are the victims of violent crimes. In 1995 gangs controlled an estimated 50,000 private and state enterprises and had full ownership of thousands more. Unlike organized criminal groups in the West, which specialize in illegal activity such as drug trafficking and prostitution, Russia's mafiya spans the entire range of the economy, discouraging private enterprise and siphoning off 10 to 20 percent of enterprise profits that are neither taxed nor reinvested in legitimate business. Organized crime also has been involved in the movement of a huge amount of capital--estimated at US$1 to US$2 billion per month--out of Russia in the mid-1990s. Such activity has prospered mainly because of strong links with corrupt officials; an estimated 30 to 50 percent of organized crime's proceeds is spent on bribes to procurators, police, and bureaucrats.

This connection is not new in the post-Soviet era; already in the Brezhnev era, officials took bribes from the underworld as the black market responded to gaps in Soviet production. In the early post-Soviet years, reformers implicitly condoned such activity in the hope that it would hasten the development of a legitimate private-enterprise sector. In 1993, however, government measures against criminals were stimulated by publicity about Russia's crime wave and by the success of ultranationalist political groups who stressed the crime issue. Many of the Yeltsin administration's law enforcement decrees of 1993 and 1994 were of questionable constitutionality, and they have had little overall effect in the mid-1990s because law enforcement agencies remain corrupt.

As Russia has attempted to meet the standards for inflation and budget deficits set by international lenders, a key element has been limiting the money supply, which was poorly controlled until 1995. The more stringent policies established that year brought loud complaints from regional governments, an increase in noncurrency payments that hampered the collection of state revenue, and continued wage arrears in state and private enterprises suffering cash shortages. Although the annual inflation rate for 1996 was 22 percent, compared with 131 percent in 1995, authorities in the Government and elsewhere blamed a new economic downturn on the tight-money policy because private enterprises lacked capital with which to expand their operations.

The 1997 monetary plan of the Russian Central Bank (RCB) called for increasing the money supply by 22 to 30 percent during that year, a level not projected to raise inflation above the 12 percent annual increase forecast by the 1997 national budget. At the end of 1996, the RCB planned for a ruble depreciation of 9 percent during 1997, which would maintain the exchange rate at between 5,750 and 6,350 rubles per United States dollar at the end of the year. During 1996 the exchange rate moved from 4,640 rubles to the dollar to 5,560, an increase of nearly 20 percent.

A Government goal for 1997 was reducing the interest rate for domestic bank loans to 20 or 25 percent to provide working capital for stagnant enterprises and limit the haphazard, uncontrolled interenterprise loans and in-kind payments that had proliferated as capital became scarce. However, shares in most enterprises remained unavailable to the general public, and the high-interest bonds sold by the Government in 1996 had attracted large amounts of bank capital away from more risky investment in private ventures.

The Government's draft 1997 budget, which had been revised by a conciliation commission of legislators and Government representatives, was approved by the State Duma in January after the four readings required by law. After the first two drafts were rejected, the Government added about US$6 billion in spending and new tax breaks to stimulate economic activity. The changes swung the votes of the Communist Party of the Russian Federation (Kommunisticheskaya partiya Rossiyskoy Federatsii--KPRF) and its allies, who had lobbied for additional government spending, but democratic parties such as Yabloko voted against the budget because of inadequate fiscal restraint. The Federation Council (the upper house of the parliament) approved the budget but expressed serious doubts about the realism of its revenue projections.

As approved, the budget was based on projections of 11.8 percent annual inflation and GDP growth of 2 percent for 1997. The planned budget deficit of about US$16.5 billion would be 3.5 percent of the projected GDP figure. However, Russian and Western experts, including Russia's minister of economics, Yevgeniy Yasin, called the GDP projection greatly exaggerated. Yasin's ministry forecast zero GDP growth for 1997, with recovery beginning in 1998 at the earliest. The budget did not include a 10 percent increase in Russia's minimum wage that went into effect in January 1997 and that would entail additional state spending. In 1996 the government's issue of bonds with interest rates exceeding 100 percent had complicated the budget-balancing process by tripling the government borrowing of 1995 and inflating the public debt from 16 to 26 percent of GDP.

Economic indicators for the first half of 1996 were mostly negative. According to an independent Russian survey, compared with December 1995 the real volume of production and services dropped by 11 percent, the number of employed persons dropped by 4 percent, the real volume of capital investment dropped by 54 percent, the average prices of manufactured products and purchased products rose by 14 percent and 25 percent, respectively, and the average wage rose by 10 percent. In the first nine months of 1996, total GDP dropped by 6 percent, and industrial output dropped by 5 percent compared with the same period in 1995. Light industry, construction materials, and machine building showed the sharpest drops in production, and domestic investment declined by 17 percent.

In the first nine months of 1996, agricultural production dropped by 8 percent. Russia's 1996 grain harvest was 69 million tons, one of the smallest in the last thirty years and only a 9 percent improvement over the disastrously low harvest of 1995. An estimated three-quarters of farms lost money, and only two-thirds of 1996 budget allotments for farm support were paid out. As of early 1997, the restructuring of the agricultural system was one of the major unfulfilled promises of Yeltsin's presidency.

Russia's foreign trade position did not improve significantly in 1996. Membership in the World Trade Organization (WTO--see Glossary), a top priority for acceptance in the international free market, continued to be delayed. Although some aspects of Russia's trade policy have been liberalized substantially, the WTO cited continuing price controls on oil, state subsidies to major industries, protective import duties, and abrupt changes in tariff and tax policies for foreign companies as defects that precluded Russia's membership. According to the WTO, stability and transparency were the major missing elements in Russia's trade policy. Although the United States pledged support for Russia's admittance in 1998, prospects were unclear in early 1997.

Foreign investment for 1996 was forecast to reach only slightly more than half the 1995 figure (US$1.5 billion), mainly because of continuing uncertainty in Russia's standards for taxation, accounting, and property rights. In October 1996, an international market consulting firm placed Russia below Brazil, Indonesia, Mexico, and Venezuela in desirability as an emerging market opportunity for investors. Corruption, fraud, and bureaucratic delays were cited as the main factors in that ranking. In November the failure of a Russian space mission to Mars lost foreign investors about US$180 million, as well as damaging the stature of a key remaining high-technology industry. In April the space program suffered further damage with the delay of the new Russia-United States International Space Station because the Government had not funded a critical aerospace contractor.

On the positive side, in October foreign investors paid nearly US$450 million for shares in Gazprom, the natural gas monopoly. About forty joint ventures were active in the oil industry in 1996, accounting for about 8 percent of Russia's total extraction. Foreign investment in Russia's extraction industries was expected to expand significantly beginning in 1997 as the State Duma expedited approval of the production-sharing agreements that are the basis of foreign participation.

In November 1996, Russia issued its first set of bonds on the European market after receiving an unexpectedly high bond rating from Western credit agencies. Following Russia's first bond rating since 1917, the bonds drew US$1 billion from United States, European, and South Korean investors attracted by the 9.25 percent interest rate. A place in the bond market was expected to help Russia raise money from other international sources. In March 1997, the issue of a second set of bonds, this time denominated in German marks, fetched US$1.2 billion. A third issue was planned for later in 1997; like the second, it was designated to pay overdue pensions and salaries.

In late 1996 and early 1997, labor groups showed some signs of ending their remarkably passive reaction to the chronic wage arrears in many of Russia's industries. (In March 1997, the total wage debt was estimated at US$8.5 billion.) Through most of 1996, with a few notable exceptions such as the coal workers, labor in Russia followed the Soviet pattern of expecting the government rather than enterprise managers to remedy their plight.

The older trade unions, many of whose leaders had been hand-picked by plant managers in the Soviet era, generally discouraged strong actions against employers in the early and mid-1990s. Unions formed after 1985 suffered from Russia's total lack of labor legislation, which allowed the government and enterprise officials to ignore union claims on behalf of the workers. Experts pointed to the lack of pressure from a united labor movement as a key reason the Yeltsin government failed to address the problem of overdue wages.

In the second half of 1996, strike activity intensified somewhat. According to government statistics, 356,000 workers at more than 3,700 enterprises participated in strikes in the first nine months of 1996, with the largest number of strikes in educational institutions and coal mines. (Doctors, miners, nurses, and teachers were the workers hardest hit by wage arrears.)

In November 1996 and March 1997, nationwide strikes and demonstrations called by the Federation of Independent Trade Unions of Russia (Federatsiya nezavisimikh profsoyuzov Rossii--FNPR), the largest such organization in the country, failed to galvanize widespread support. In the March action, an estimated 2 million workers struck or demonstrated, but more than 80 percent of those were teachers, and the FNPR had predicted substantially heavier participation. Observers attributed the low turnout to apathy, lack of trust in the FNPR, and the expectation that Yeltsin's recent government reorganization would improve the situation.

The democratization of the political system has followed an equally bumpy path in Russia's first post-Soviet years. As with economic reform, some elements of political reform appeared under Gorbachev in the late 1980s. The policy of glasnost allowed public discussion of hitherto taboo subjects, including the wisdom of government economic policy in a time of serious economic decline. As the Soviet Union's regional jurisdictions clamored for various degrees of sovereignty, Boris Yeltsin led Russia's challenge to Soviet authority in a number of areas. In 1991 Russians elected Yeltsin president of their republic in a free election; the coup against Gorbachev in August 1991 made Yeltsin the most powerful man in Russia, which shortly became an independent state.

From the very beginning, Yeltsin's attempts to promulgate reform programs from the office of the presidency encountered stiff opposition from antireform factions in the legislative branch. Beginning in 1994, that opposition was centered in the State Duma. After Yeltsin used military force to overcome an open rebellion against his dismissal of the parliament in October 1993, he achieved passage of a new constitution that prescribed a strong executive and reduced the powers of the legislative branch. However, the first two legislative elections, in 1993 and 1995, seated large numbers of deputies from the KPRF, the Liberal-Democratic Party of Russia (Liberal'no-demokraticheskaya partiya Rossii--LDPR), and other nationalist and antireform groups. Under worsening economic conditions, a seemingly unstoppable crime wave, and a highly unpopular war in Chechnya, Yeltsin's popularity plummeted in 1995 and early 1996. His response was a contradictory series of personnel and agency shifts at top government levels, together with presidential decrees that often reversed the movement toward democratic governance. By early 1996, virtually all reformist officials had been removed from positions of influence, and a group of hard-liners, led by presidential security chief Aleksandr Korzhakov, Deputy Prime Minister Oleg Soskovets, and Minister of Internal Affairs Anatoliy Kulikov, seemingly had the president's ear.

By that time, Yeltsin's authoritarian use of executive power had combined with the Chechnya imbroglio to lose him the support of the democratic and reformist factions that had been active promoters of early reform policies. As he engaged in an uphill presidential campaign, Yeltsin made lavish promises of government aid to unemployed workers and state enterprises, and allegations of corruption in the latest phase of the privatization program forced him to remain silent about that aspect of his administration.

The 1996 presidential campaign yielded two distinctly opposed theories of governance: the KPRF's frank appeal for return to the central rule of Soviet days and Yeltsin's sometimes timid commitment to democratization and economic reform. In general, however, the national party system remained quite fluid. Although a large number of parties with national constituencies emerged, much shifting occurred among the smaller parties as coalitions formed and dissolved. Some forty-three parties and coalitions registered for the 1995 legislative elections. In 1995 Yeltsin attempted to dominate party politics by forming two nominally opposed parties with essentially pro-administration positions, but his strategy was unsuccessful. The one major party that emerged from his manipulations, Our Home Is Russia, captured relatively few seats in the State Duma in 1995 but retained national standing as a major party because of its identification with Chernomyrdin.

Of the proreform opposition groups, the Yabloko coalition remained the strongest in 1996, but its influence was limited because it refused to join forces with other reform parties. The candidates of Yabloko and other reformist groups fared poorly in the first round of the 1996 presidential election. Meanwhile, the KPRF had developed a unified and loyal following among Russians disillusioned with Yeltsin and nostalgic for the Soviet past.

As the presidential campaign developed, the KPRF candidate, former CPSU functionary Gennadiy Zyuganov, emerged as the prime competitor of Yeltsin. The president used his access to broadcast and print media (which feared the repression that would result from a KPRF victory) to climb steadily in the polls. In the first round, Yeltsin defeated Zyuganov narrowly. Before the second-round faceoff with Zyuganov, Yeltsin dismissed the most visible hard-liners in his administration, added popular third-place finisher Aleksandr Lebed' to his administration, and coaxed lukewarm endorsements from Yabloko and other reformist parties.

In the second round, Yeltsin easily defeated Zyuganov, a dull campaigner who could not convince undecided voters that a KPRF victory would not mean a return to the days of Soviet repression. In what amounted to a contest between anti-Yeltsin and anticommunist sides, Yeltsin attracted an estimated 17 million voters who had voted for Lebed' or Yabloko candidate Grigoriy Yavlinskiy in the first round, and for whom Yeltsin now was the lesser of two evils.

To gain acceptance as the main opposition faction at the national level, after the presidential election the KPRF attempted to broaden its constituency by forming a coalition called the National Patriotic Union of Russia. The coalition included the leftist and nationalist groups that had supported Zyuganov's 1996 presidential bid. To improve its national image from one of disruption to one of constructive cooperation, the coalition softened its antigovernment rhetoric. A prime example of the new approach was KPRF support of the Chernomyrdin government's draft budget in the State Duma deliberations of December 1996-January 1997.

The KPRF found this position tenable while Yeltsin was ill and the moderate Chernomyrdin had a strong position in the Government. However, the Government reorganization of March 1997 gave new power to reformists with whom the KPRF shared little common ground. The party also showed signs of a split between moderates and radicals who rejected compromise. Meanwhile, young Russians showed little interest in joining the KPRF, which offered few constructive ideas about Russia's future and whose membership increasingly was based on an old guard of Soviet-era activists.

Beginning his second term, Yeltsin filled his new cabinet with individuals with reformist credentials. Free-market advocate Aleksandr Livshits was appointed minister of finance, and reformist Yevgeniy Yasin retained his position as minister of the economy. In another indication that economic reform would continue, Yeltsin named reformist Al'fred Kokh as deputy prime minister for privatization. Retained from the previous Government were Minister of Foreign Affairs Yevgeniy Primakov (a 1996 appointee), recently appointed Minister of Defense Igor' Rodionov, and hard-line Minister of Internal Affairs Anatoliy Kulikov.

The Ministry of Environmental Protection and Natural Resources was redesignated the Ministry of Natural Resources; environmental issues were shifted to a new, subcabinet agency, the State Environmental Protection Committee, headed by Viktor Danilov-Danil'yan, who had been minister of environmental protection and natural resources in the first Yeltsin administration. The only minister affiliated with the KPRF was Aman Tuleyev, a strong proponent of reintegration of the CIS states, who was appointed to head the Ministry of CIS Affairs.

In August 1996, Chernomyrdin listed among the new Government's goals a dramatic reduction of the state bureaucracy, including the elimination of twenty-four ministries and agencies. However, no streamlining occurred until March 1997, when Yeltsin dropped three of his deputy prime ministers and announced a large-scale Government reorganization as a remedy for what Yeltsin admitted was poor performance by his second-term appointees. The new, smaller Government was to include eight deputy prime ministers (compared with twelve previously), twenty-three ministries (three of which were headed by deputy prime ministers, and a reduction of one from the previous organization), sixteen state committees (compared with seventeen previously), and twenty other federal agencies.

A key appointment in this period was Boris Nemtsov as deputy prime minister in charge of social issues (including the crisis of wage and pension arrears) and the extremely prob-lematic reform of state monopolies and housing subsidies. As governor of Nizhniy Novgorod Oblast, Nemtsov had gained international recognition for his brilliant regional economic reforms. Nemtsov's reputation for honesty also was expected to improve the tarnished image of Yeltsin's administration.

The Government reorganization process required much more time than expected because factions struggled to gain coveted posts and no qualified persons could be found for others. Reportedly at least twelve individuals refused appointments to head ministries and committees. The reorganization also sharpened the power struggle between the Government and the State Duma, the main political bastion of numerous special interests that the initiatives of Chubays and Nemtsov promised to attack, and whose patron, Chernomyrdin, now was fading.

In June 1996, the appointment of former general Aleksandr Lebed' as head of the Security Council improved the prospects of an already promising political figure. In this position, Lebed' remained in the public eye by making controversial speeches on matters of policy and by negotiating what turned out to be the conclusive cease-fire of the Chechen conflict. Lebed' had a base of avid supporters who craved charismatic, assertive leadership. Unlike most other Russian government figures, he created a positive image on television, which by 1996 was the most important source of news for most Russians. In October Yeltsin responded to continued criticism from Lebed' by dismissing him from the Security Council. In the months that followed his dismissal, Lebed' polished his public image in Russia and abroad. He began preparations for a future presidential campaign by seeking funds for future political activities, and by traveling to the United States and Western Europe. Although he virtually disappeared from the pro-Yeltsin television networks after his dismissal, in early 1997 polls indicated that Lebed' remained the most popular political figure in Russia. In March he established a new opposition party, the Russian People's Republican Party, which he described as an alternative to the KPRF and the ruling elite.

Early in Yeltsin's second term, the urgency of the Chechnya conflict receded as the two sides negotiated the long-term conditions of the so-called Khasavyurt accords that Lebed' had achieved in August 1996. The cease-fire was met with great relief by the Russian people as the end of a long ordeal, and this attitude contributed to the enduring popularity of Lebed'. In October the Khasavyurt accords survived the dismissal of their architect; the Chechens reluctantly continued negotiations after the moderate Ivan Rybkin was named to replace Lebed' as Security Council chief and head negotiator on the Russian side. In November Yeltsin announced the withdrawal of the two Russian brigades that had been designated for permanent occupation of Chechnya, a concession upon which Chechen negotiators had adamantly insisted. By February 1997, all Russian units had been withdrawn. After six Red Cross workers and six Russian civilians were murdered--apparently by renegade guerrillas--near Groznyy in December 1996, all international aid organizations except for the Organization for Security and Cooperation in Europe (OSCE--see Glossary) removed their personnel from Chechnya. Unreconciled Chechen guerrilla groups continued kidnappings in 1997, however, and the resettlement of Russian émigrés from Chechnya promised to strain the already meager resources of Russia's Federal Migration Service.

In late 1996, Russia took an increasingly conciliatory negotiating approach with the Chechens, offering agreements restoring trade, communications, customs relations, and road links and resuming oil and gas refining and transport. Russia's best hope of keeping Chechnya in the federation in 1997 was economic leverage, because the war had left the republic decimated and without international ties and because the infrastructure already existed for Russia to restore Chechnya's most vital industry, oil refining. The main Russian economic negotiator was Boris Berezovskiy, a controversial automotive and banking mogul who had contributed a large sum to Yeltsin's reelection campaign.

The ultimate status of Chechnya and the payment of war reparations remained unresolved in early 1997. The Khasavyurt accords called for a five-year waiting period before deciding the independence issue, but Russia insisted that the territorial integrity of the federation must not be threatened. In January 1997, Chechnya conducted its first presidential and legislative elections; international observers described the election procedure as fair and open, although refugees from Chechnya, including an estimated 350,000 Russians, were not permitted to vote. Russia's foreign policy establishment saw Aslan Maskhadov, the former military leader who easily won the presidency, as a potential partner in further negotiations, unlike the more radical presidential candidates. However, all sixteen presidential candidates based their platforms on Chechnya's full independence under the name "Republic of Chechnya-Ichkeria," and Maskhadov refused to take his rightful seat as a republic governor in Russia's Federation Council. Russia's official response to the January elections was muted; by March, the terms of a treaty of "peace and agreement" were under serious discussion.

As Yeltsin began his second term, the strength of the president's political position and the nature of his intentions remained unclear. Yeltsin ended his first term on an ominous note by retreating completely from public view immediately after his election victory. The heart attack that Yeltsin suffered between the two rounds of the election was identified only later as the cause of his disappearance.

Beginning with the first round of the presidential election, Yeltsin's physical condition exerted a growing influence over the political atmosphere in Russia. In the fall of 1996, news of the president's very serious heart condition intensified speculation about the identity of likely successors. As Yeltsin maintained a limited public schedule in that period, three figures, Chernomyrdin, Lebed', and Moscow's very popular mayor, Yuriy Luzhkov, jockeyed openly for advantage in the anticipated post-Yeltsin era--although Chernomyrdin clearly lacked the political appeal of his potential rivals. Those maneuvers continued after Yeltsin's heart surgery in November.

By early 1997, Russia's apparent lack of leadership caused intense concern and speculation in the international community, and Yeltsin's popularity again plummeted as workers and pensioners remained unpaid. In March 1997, Yeltsin used his annual state of the federation speech to the State Duma to reassure domestic and foreign opinion and to reassert his presidential power--a goal that he achieved by delivering a forceful and coherent speech. Accusing the Government of failing to execute his commands, Yeltsin repeated his unfulfilled 1996 promises of wage and pension payments, accelerated economic reform, and more efficient government.

During Yeltsin's absence, another figure bore the brunt of opposition attacks on the administration. In 1995 and early 1996, Yeltsin had dismissed reform economist Anatoliy Chubays from two high-level economic positions in response to strong criticism from antireform factions. However, after directing Yeltsin's successful 1996 presidential campaign, Chubays was rewarded with the chief of staff position in Yeltsin's second administration, at the same time increasing the prospects that the pace of reform would increase.

Although too unpopular to have a realistic chance at the presidency, Chubays maneuvered effectively within the Yeltsin administration. He formed an alliance with Yeltsin's ambitious daughter, Tat'yana Dyachenko, who was rumored to have substantial influence over her father's policy decisions. The work of Chubays was widely seen in the dismissal of the Aleksandr Korzhakov coterie in June and of Aleksandr Lebed' in October. Chubays was credited with maintaining some sort of order during Yeltsin's convalescence in the early stages of the second administration, even as Chubays's many enemies spread rumors of illegal campaign funding and links with organized crime.

Despite speculation that Yeltsin would limit Chubays's power by increasing the prestige of rivals--a technique Yeltsin had used throughout his presidency--in the Government reorganization of March 1997 Yeltsin advanced Chubays to the positions of deputy prime minister in charge of economic affairs and minister of the economy. Chubays now had direct control of the governmental restructuring that Yeltsin prescribed to end bureaucratic gridlock, and the new faces that Yeltsin appointed at that time improved the prospect that the new minister would be able to accelerate economic reform in 1997.

In July 1996, experts had seen Yeltsin's creation of a civilian advisory Defense Council as an effort to balance the power that Lebed' had gained as chief of the Security Council. In October the head of the Defense Council, Yuriy Baturin, supplanted Lebed' as the primary architect of military reform, dismissing six top generals and reassigning several who remained. By the end of 1996, Baturin was in a bitter battle with defense minister Rodionov for authority over reform policy. By March 1997, Rodionov's position in the administration was reported to be quite tenuous.

Late in 1996, another extraconstitutional organ was formed in the Yeltsin administration: a permanent, four-member Consultative Council that included the president, the prime minister, and the speakers of the two houses of the Federal Assembly. The council was to meet twice a month in an effort designed to smooth differences between the two branches of government. The inclusion of the State Duma speaker brought a prominent KPRF deputy, Gennadiy Seleznev, into a top advisory group--a move calculated by Yeltsin and Chubays to either divide or conciliate the strongest of the opposition parties. The fourth member of the council was Yegor Stroyev, speaker of the Federation Council and usually a Yeltsin supporter. During Yeltsin's illnesses, Chubays represented the president at council meetings.

Already in the mid-1990s, the executive branch contained numerous directorates and commissions answering only to the president. In 1996 the addition of extraconstitutional governing bodies such as the Defense Council and the Consultative Council continued Yeltsin's propensity to govern by decree and outside constitutionally prescribed lines of power. According to some experts, the existence of seemingly redundant presidential policy-making groups was a new manifestation of Russia's long tradition of arbitrary rule; according to others, such organs were necessary to circumvent the gridlock of opposition in the State Duma.

In the fall of 1996, Yeltsin's illness brought demands from all political factions for clarification of the 1993 constitution's vague language on replacing a disabled head of state: the conditions for such replacement are listed in the constitution, but the authority to make the decision is not specified. In this case, Yeltsin responded by temporarily delegating to Prime Minister Chernomyrdin his authority as commander in chief of the armed forces, head of internal security, and custodian of the codes needed to unleash a nuclear attack. Within hours of his successful heart bypass surgery in November, Yeltsin publicly reclaimed full control, apparently seeking to end the impression of a power vacuum in Moscow. In the months that followed, however, government assurances of Yeltsin's continued competence met increasing skepticism as the president appeared only in carefully edited news film. In the first months of 1997, KPRF deputies introduced motions in the State Duma to impeach Yeltsin on health grounds, and the Duma discussed constitutional amendments limiting the powers of the president.

Between September 1996 and March 1997, Yeltsin's administration faced a new political challenge when a series of regional elections provided the KPRF and its nationalist allies another opportunity to weaken Yeltsin's political base. Fifty-two of Russia's eighty-nine subnational jurisdictions were to elect chief executives during that period, and all of those executives are ex officio members of the Federation Council, the upper house of parliament and a bastion of Yeltsin support until 1997. (The chief executives of republics are called presidents; those of other jurisdictions carry the title governor or administrative head.)

Before the elections began, experts identified fifteen of those constituencies, primarily in the "Red Belt" along the southern border from the North Caucasus to the Far East, as sure to elect communist leaders. At the end of 1996, a Yeltsin-appointed incumbent chief executive had been defeated in twenty-four of the forty-four elections decided to that point. The KPRF had backed fifteen of the new officials, and six had had Yeltsin's support. Among the victors were former vice president and outspoken Yeltsin critic Aleksandr Rutskoy, who was elected governor of Kursk Oblast, and Vasiliy Starodubtsev, a central figure in the 1991 coup against the Gorbachev government, who was elected governor of Tula Oblast. In most cases, successful candidates took less partisan positions and were more ready to negotiate with their opposition than experts had predicted when the elections began. Incumbents generally fared better in northern and urban regions where economic conditions were the most favorable. Yeltsin's doubtful health and the rescinding of his 1996 campaign spending promises hampered some progovernment candidates. All the chief executives elected in 1996 were expected to wield greater political power because they now had direct mandates rather than presidential appointments, and that legitimacy also would bolster the power of the Federation Council vis-à-vis the State Duma in the Federal Assembly.

In 1996 the central government's economic and legislative control of subnational jurisdictions continued to slip away as the power of regional chief executives increased proportionally. Governors such as Yevgeniy Nazdratenko of strategically vital Maritime (Primorskiy) Territory on the Pacific coast and Eduard Rossel' of Sverdlovsk Oblast in the Urals already had established personal fiefdoms outside Moscow's control. Nazdratenko openly challenged the national administration on a number of issues, including the transfer of a small parcel of his territory's land to China as part of a Sino-Russian border treaty. In 1993 Sverdlovsk Oblast briefly declared itself a republic under Rossel'. As of January 1997, Moscow had signed bilateral agreements, establishing a wide variety of power-sharing relationships, with twenty-six subnational jurisdictions.

By 1996 regional governments raised 50 percent of taxes and accounted for 70 percent of government spending in Russia. Although only fifteen of eighty-nine subnational jurisdictions were net contributors to the federal budget and sixty-seven relied on federal subsidies for pensions, in 1996 Moscow still had no centralized system to account for movement of funds between the federal government and the regions. Many jurisdictions complained that the 1997 budget did not allocate sufficient funds to them to compensate for their tax payments to Moscow. As of March 1997, no subnational jurisdiction had received a full allotment of federal pension funds, and only ten jurisdictions had paid their federal taxes in full.

In October 1996, the emergency tax committee was forced to withdraw its threat of bankruptcy proceedings against the Kama Automobile Plant (KamAZ), one of the Republic of Tatarstan's largest industries, for nonpayment of federal taxes. Citing the 1994 power-sharing treaty between the republic and the federal government, Tatarstan's president Mintimer Shaimiyev convinced Chernomyrdin that ending KamAZ's favorable tax status would intrude on the republic's economic sovereignty.

Experts predicted that tensions between Moscow and the subnational governments would intensify during the shaping of Russia's new federal system, especially as that system addresses the question of who controls the country's vast national resources. After the regional elections, a loose coalition of jurisdictions that were net contributors to the federal budget ("donor regions") was in a position to gain significant economic concessions from the federal government. At the same time, the eight regional economic associations, which include all of Russia's eighty-nine subnational jurisdictions except Chechnya, showed new cohesiveness and also were expected to gain greater autonomy and attention from Moscow in 1997. Those associations are: the Far East and Baikal Association; the Siberian Accord Association; the Greater Volga Association; the Central Russia Association; the Cooperation Association of North Caucasus Republics, Territories, and Oblasts; the Black Earth Association; the Urals Regional Association; and the North-West Association.

In October presidential chief of staff Chubays began a campaign to reverse the movement toward regional autonomy. Chubays called for a review of the many regional laws that contravene the national constitution, in an effort to curtail the autonomy that such legislation encourages. (Several of the regional constitutions adopted after 1991 contain language contradicting the national constitution, and the electoral laws of some twenty-seven regions reportedly violate federal law.) However, the project was postponed because regional procurators, who would be responsible for such an investigation, lack sufficient authority over regional officials. After the elections of 1996-97 gave most regional leaders a popular mandate, the lack of federal sanctions on subnational jurisdictions violating federal law became a more significant threat to the integrity of the federation as well as to human rights and the balance of political power within jurisdictions. Meanwhile, local and municipal administrations chafed under restrictions imposed by regional jurisdictions, just as the latter complained about Moscow's restrictions.

In the post-Soviet period, Russia's foreign policy has shifted significantly, most often in response to domestic rather than foreign conditions. The early Yeltsin administration, represented by Minister of Foreign Affairs Andrey Kozyrev, sought to bring Russia fully into the community of nations--especially Western nations--and to dispel the aura of the Evil Empire. The military and economic competition of the Cold War was replaced by a series of cooperative agreements with Western powers, including disarmament treaties, that brought economic and humanitarian aid to Russia. The vast set of Soviet commitments that spanned the world in the 1980s was reduced in an effort to concentrate limited resources in the most useful areas.

However, a strong nationalist faction in the parliament and elsewhere saw such complaisance as the surrender of the preeminent, rightful role in world politics that had been won in the Soviet era. This faction, which has been compared with the nineteenth-century Slavophile movement that sought to protect Russian culture from the harmful intrusion of Western civilization, has urged that Russia recapture as much influence as possible in the former Soviet Union and the former Soviet empire in Central Europe. This process would discourage the influence of the West in those regions, countering the ostensible drive of the North Atlantic Treaty Organization (NATO--see Glossary) to push Russia out of the continent of Europe. For many advocates of this position, the preferred area of closer foreign relations is Asia, and a new anti-Western alliance with China is the focal point.

In the early and mid-1990s, Yeltsin had improved Russia's international image by participating in several meetings of the Group of Seven (G-7--see Glossary) as well as his regular summit conferences with United States presidents. In maintaining such contacts, Yeltsin attempted to walk a line between making concessions to the West that would anger Russian nationalists and taking independent positions that would weaken the Western commitment to aid Russia during its transition period. As a result of these conflicting demands, in the mid-1990s Russia's foreign policy positions have been inconsistent, and Yeltsin, Minister of Foreign Affairs Yevgeniy Primakov, Chernomyrdin, and other official spokesmen often have issued contradictory statements on important issues.

On issues such as Chechnya and human rights in Russia, Western diplomats refrained in 1996 from criticizing Yeltsin for fear of damaging his prestige at home. Before the August 1996 cease-fire in Chechnya, the IMF offered Russia the second-largest loan in the bank's history, and the Council of Europe (see Glossary), considered a guardian of human rights in Europe, admitted Russia to its membership despite numerous reports of atrocities in Chechnya and noncompliance with the council's policy on capital punishment.

However, Yeltsin received substantial criticism from the West for some policies that failed to comply with international standards. Among them were the sale of nuclear reactors, submarines, and other critical items to Iran in violation of international sanctions; continued dumping and careless handling of nuclear materials by Russia's civilian and military agencies (criticism coming mainly from Japan and the Scandinavian countries, which were most directly affected); and Russia's failure to comply with the arms limitations of the Conventional Forces in Europe Treaty (CFE Treaty--see Glossary). Most of the summit meetings of the mid-1990s discussed some or all of those questions, but few solutions emerged. Early in 1997, Russia's relationship with Iran had become closer, its nuclear safety policies remained unchanged, and CFE Treaty modifications were under discussion.

In the mid-1990s, the major point of conflict in the struggle over Western influence in Russia was the projected expansion of NATO into former Warsaw Pact nations of what is now called Central Europe. In 1995 and 1996, numerous statements by the Russian government rejected the possibility that countries such as Poland and Hungary could enter NATO without dire consequences. Russia's statements predicted that, by isolating and impoverishing Russia, a NATO presence would in fact reactivate the Cold War. During 1996 government spokesmen threatened a variety of diplomatic and military reprisals if NATO membership were enlarged. Most experts labeled Russia's behavior as gamesmanship aimed at gaining the most advantageous possible position once an inevitable first round of NATO expansion occurred.

Despite Russia's threats, in 1996 eleven European countries, including the three Baltic states--Estonia, Latvia, and Lithuania--reiterated their enthusiasm for gaining NATO membership. In early 1997, Bulgaria declared its desire to join, and Georgia, Moldova, and Ukraine sought closer cooperation with the alliance.

A potentially important change appeared in the Russian position at the end of 1996. In September the United States had proposed a charter that would give Russia a special relationship with NATO, in an attempt to relieve tensions over the expansion issue. In January 1997, Primakov began to negotiate such an agreement with NATO secretary general Javier Solana. As negotiations proceeded, two of Russia's key goals emerged: obtaining more favorable terms in the CFE Treaty and limiting the NATO military presence in any new member nation in Central Europe. In keeping with Russia's position that NATO is an anachronistic leftover of the Cold War, Primakov and Chernomyrdin demanded a binding treaty obligating NATO to reform itself from a military to a "political" organization.

As conceived in the West, the agreement would offer Russia consultation but no veto on NATO expansion decisions; increased presence of Russian observers at various NATO command levels; and modification of existing arms reduction agreements to suit Russia's demands. At the March 1997 Helsinki summit, Yeltsin backed the agreement as a way around the issue of NATO expansion, which he still called "a mistake." By that time, Primakov and Solana had agreed on most of the charter's terms, including a permanent consultative council for discussion of issues such as nuclear security, crisis management, and peacekeeping operations. However, Primakov insisted on restricting the presence of NATO forces in any new member nation, a concession that NATO refused because it would interfere with the alliance's basic commitment to mutual defense. Because NATO had set a target date of July 1997 for the first official invitations to new member nations, little time was available for conflicting views to be mediated. (Russia demanded that the signing of the Russia-NATO charter precede and be separate from the NATO summit that would announce the invitations.)

During his first term in office, Boris Yeltsin continued the tradition, begun by Mikhail Gorbachev, of holding regular summit meetings with United States presidents. The second Strategic Arms Reduction Treaty (START II--see Glossary) was a product of a 1993 summit with President George H.W. Bush. Western experts saw the drastic nuclear arms reductions of START II as a way for Russia to cut military expenses without sacrificing national security, at a time when nuclear parity was an increasingly expensive proposition. But as Russia's conventional military forces deteriorated and funding declined in the mid-1990s, nuclear strike capability assumed a more prominent place in national security planning. Therefore, by late 1996 Russian authorities were demanding greater limitations on sea-based nuclear warheads, in which the United States has a distinct advantage; greater latitude for deployment of land-based missiles, in which Russia is strongest; and revision of the START II restrictions on the multiple-warhead weapons that Russia considers its most formidable threat.

In October 1996, United States secretary of defense William Perry met strong resistance when he tried to convince the State Duma and Ministry of Defense officials in Moscow that START II ratification would benefit both sides. At the same time, Russia also delayed finalizing an agreement on classification of anti-ballistic missiles (ABMs), indicating continuing sensitivity about the prospect of the United States building a missile interception system that would negate much of Russia's nuclear strike capacity. Early in 1997, Western defense experts began formulating a START III proposal that might leapfrog the START II deadlock by eliminating at least some of the most serious obstacles. But the largest obstacle was the NATO issue: already in 1995, nationalists and many moderates in the State Duma refused to even consider START II without assurances that NATO would not move eastward, and this linkage remained in early 1997.

In the early stages of Yeltsin's second term, high-level diplomatic contact with the West was fitful and unproductive. In September a Moscow visit by German chancellor Helmut Kohl, Yeltsin's most vocal supporter among Western leaders, failed to bridge the two countries' differences on sanctions on Iraq (which Russia opposed), NATO expansion, and conditions for expanded German investment in Russia. In late December, the first foreign leader to confer with Yeltsin after his convalescence was China's prime minister Li Peng rather than a Westerner. At that time, Russia and China signed new bilateral agreements on cooperation in banking, nuclear power plant construction, and the sale of two naval destroyers to China. In early 1997, visits by Kohl and French president Jacques Chirac to Moscow produced no breakthrough on the NATO expansion issue.

The Helsinki summit, the first such meeting since April 1996, yielded agreements on a range of economic matters; Russia was promised an increased role in the G-7, whose annual meetings were to be renamed the Summit of the Eight, and Yeltsin received United States commitments for enhanced investment and integration of Russia in global markets and support for much-coveted entry into the World Trade Organization (WTO--see Glossary) in 1998. Yeltsin pledged renewed support for passage of START II in the State Duma, and he supported a START III agreement that would further reduce strategic arms. The two presidents pledged support for ratification of the 1993 Chemical Weapons Convention, which faced stiff opposition in the legislatures of both countries. Yeltsin also unexpectedly accepted an understanding of the Anti-Ballistic Missile Treaty (ABM Treaty--see Glossary) that would allow the United States to continue developing a limited ABM system.

Yeltsin's robust performance at the summit also allayed the health fears that had haunted his second administration. The president received strong criticism from communist and nationalist factions for the substantive output of the summit, but experts noted that Russia's position in the meeting provided little negotiating leverage.

Russia and NATO did cooperate successfully in Bosnia. In September 1996, Primakov expressed Russia's willingness to extend the assignment of Russian troops to the NATO international peacekeeping force, IFOR, with which they had functioned smoothly for more than a year. Russia's continued participation was conditioned on the lifting of international sanctions against Serbia. The sanctions ended in October; Russia took an active part in planning the next phase of the peacekeeping operation. In January 1997, Yeltsin approved extending Russia's participation through July 1998.

Recovery of the empire of the Soviet Union became a foreign policy goal of increasing importance in the mid-1990s. In the Duma elections of December 1995, every party and group mentioned reintegration of the CIS states in its foreign policy platform. In 1996 nationalists used a variety of strategies to encourage the government to extend Russia's influence in the CIS countries. In three former Soviet states plagued with internal conflict--Georgia, Moldova, and Tajikistan--Russian troops remained in ostensibly peacekeeping roles, and Russian negotiators continued to sponsor talks between hostile groups. Many experts called the diplomatic activity an insincere effort to achieve stability in areas where continued conflict was the only justification for a Russian military presence.

In late 1996, the State Duma overwhelmingly approved a permanent Russian force in the breakaway Dnestr Moldavian Republic (Transnistria) in Moldova, claiming erroneously that most of the republic's citizens are Russian and thus require protection. (A 1994 treaty with Moldova, which the State Duma never ratified, provided for withdrawal of all Russian forces.) Early in 1997, Russian officials promised that forces would be withdrawn when the Transnistria question was settled, while at the same time encouraging the separatists to push for full independence.

In December 1996, a Federation Council resolution officially claimed the city of Sevastopol', located on Ukraine's Black Sea coast, as Russian territory. This claim continued Russia's post-Soviet dispute with Ukraine over control of the Black Sea Fleet that the two countries had inherited from the Soviet Union. Moscow mayor Yuriy Luzhkov, hoping to gain national stature for future political advancement, became a main spokesman for the claim on Sevastopol'. In 1996 Yeltsin and Ukraine's president Leonid Kuchma had negotiated terms for dividing the fleet, but the new claims by Russian nationalists threatened to sour the recently improved relations between Russia and Ukraine. Spurred by Russia's territorial claims, in January 1997 Ukraine proposed a "special partnership" with NATO, ratification of which was expected at the midyear NATO summit.

The bitter border disputes that had erupted with Estonia and Latvia at the time of those republics' declarations of independence continued into 1997, although in both cases some concessions were made in late 1996 and early 1997. As progress was made on territorial issues, the main sticking point in 1997 was Russia's requirement that the two Baltic states change their policy against granting dual citizenship to their Russian populations.

Russia also struggled to maintain as much as possible of its Soviet-era access to the rich natural resources of the Caspian Sea, against the claims of former Soviet republics Azerbaijan, Kazakstan, and Turkmenistan. Allied with Iran, Russia called for joint jurisdiction of resources by all adjoining states rather than allocation according to national borders. The latter system, advocated by the other three former republics, would place most Caspian oil fields outside the jurisdiction of Iran and Russia. In October 1996, Russia amended its previous hard-line approach somewhat, but the issue promised to be under negotiation for an extended period.

Early in 1996, a customs union agreement was concluded among Belarus, Kazakstan, Kyrgyzstan, and Russia, significantly reducing trade barriers within that group (and simplifying the smuggling of narcotics from Central Asia into Russia). In November 1996, Russia reversed its recent policy of reducing credits to other CIS countries, increasing its credit allotment for CIS partners by about fifteen times in the 1997 draft budget. Those credits are limited, however, to the purchase of Russian goods. The total debt of CIS countries to Russia was estimated at US$6 billion, plus US$3 billion in unpaid energy bills, prior to the credit extension. Russia's CIS trade figures for early 1997 showed a decline in most categories, with natural gas accounting for the bulk of exports within the commonwealth.

Russia's stature in the CIS suffered setbacks in the 1990s as other CIS nations took independent positions on a variety of issues. From the beginning, charter members Turkmenistan and Azerbaijan took very independent positions: contrary to Russia's desire to maintain a military presence throughout the CIS, Azerbaijan allowed no Russian troops at all on its soil, and Turkmenistan maintained joint command of all military units. Kazakstan and Turkmenistan continued to seek Western support in bypassing the Russian pipelines upon which they previously had depended for their oil and natural gas shipments in the Soviet system. Early in 1997, Kazakstan's president Nursultan Nazarbayev, a consistent and influential advocate of economic integration of the newly independent states, criticized Russia's leadership of the CIS, calling for diversification of control in order to energize the moribund organization.

Belarus, whose president, Alyaksandr Lukashyenka, had pushed his country toward reunification with Russia, suffered a constitutional crisis late in 1996. Lukashyenka's bid for authoritarian power provoked strong nationalist opposition in the parliament of Belarus. It also brought unfavorable international attention to Russia's dominant position in the new bilateral relationship established by the 1996 Community of Sovereign Republics treaty. Unsuccessful in mediating the dispute between Lukashyenka and the Belarusian parliament, Russia continued staunch support for Lukashyenka in early 1997, although Russia's reform factions opposed closer relations that would require Russia to support Belarus's backward economy. A new agreement signed by Yeltsin and Lukashyenka in March 1997 reaffirmed the 1996 treaty but increased the controversy in Moscow between reformers--including Chubays and most of Yeltsin's new top-level Government appointees--and nationalists, who saw union with Belarus as the first step in restoring the Soviet Union.

In 1996 Uzbekistan, the strongest of the five Central Asian CIS states, began a concentrated effort to cultivate commercial and diplomatic relations with Western countries and Israel. In May 1996, Uzbekistan's president Islam Karimov criticized the Economic Cooperation Organization of Islamic nations, of which Uzbekistan is a member, for its anti-Israeli and anti-United States positions; then he made a state visit to the United States to improve bilateral relations. In January 1997, Karimov voiced support for expansion of NATO.

In November Kazakstan, Kyrgyzstan, and Uzbekistan announced plans for a Central Asian peacekeeping battalion to be used in United Nations-sponsored operations and to be trained within NATO's Partnership for Peace (PfP--see Glossary) program. The new unit's Western connections were a signal that the wealthiest Central Asian countries wished to reduce Russia's role in regional security. Russia responded by seeking joint action with the Central Asian republics in defending against infiltration by Afghanistan's aggressively fundamentalist Taliban movement. The Russian gambit gained support from Karimov and Tajikistan's president Imomali Rahmonov. At the CIS summit in March 1997, Yeltsin attempted to foster unity and to reassert Russia's dominance, but Georgia, Kazakstan, Turkmenistan, and Uzbekistan reiterated their individual national concerns, complained about the CIS's ineffectiveness, and defended their right to form relationships outside the context of the full organization. Yeltsin's chief vehicle for economic reintegration was to be his Concept for Integrated Economic Development of the CIS, which CIS foreign ministers refused to discuss pending modification.

In February 1997, NATO secretary general Javier Solana received a warm reception when he visited Georgia and Moldova. Moldova's president Petru Lucinschi requested a NATO security guarantee for the borders of his neutral country, showing concern for the continued presence of Russian forces in Transnistria. Georgia's president Eduard Shevardnadze was frustrated after more than two years of fruitless Russia-brokered negotiations with Georgia's separatist republic, Abkhazia. The failure to resolve territorial and refugee issues there postponed Georgia's unification and, ultimately, its independence from Russian military assistance. Georgia concluded several bilateral military agreements with NATO member countries in 1996. In his talks with Solana, Shevardnadze characterized Georgia as an integral part of the new European zone of security to be formed once NATO expanded. (Early in 1997, the Group of Russian Forces in the Transcaucasus began withdrawing units from Georgia into Russia as part of the overall military downsizing program.)

Of the countries Solana visited, only Armenia continues to seek extensive military assistance from Russia. In 1997 Armenia still was under blockade by Azerbaijan and Turkey, traditionally hostile Muslim states that nearly surround the country, and Russia supported Armenia in the Nagorno-Karabakh conflict with Azerbaijan--factors that made Russia Armenia's only alternative for regional economic and security assistance.

The appointment of the Arabist Primakov as minister of foreign affairs in January 1996 continued the turn of Russia's foreign policy from West to East, and diplomatic activity in the East increased in 1996--despite official protestations that Russia seeks a balance between East and West. By the end of 1996, Russia and China had resolved several of the issues that had split the major communist powers for several decades, and both sides seemed intent on forming additional ties in 1997. Meanwhile, accelerated commercial activity in Russia's Maritime (Primorskiy) Territory encouraged new agreements between Russia and the two Koreas, and progress was made in late 1996 in resolving the fifty-year stalemate with Japan over Russian occupation of four of the Kuril Islands. New initiatives also went to the prosperous member nations of the Association of Southeast Asian Nations (ASEAN), expanding the drive to make Russia a Pacific Rim commercial power. In November 1996, Primakov visited China, Japan, and Mongolia with the stated goal of improving Russia's position in vital Asian markets. Primakov visited Iran the following month. Russia also felt that establishing its identity as an Asian power was crucial because it had been excluded from several prosperous Pacific Rim trading groups and from talks on Korean unification. China's rapid emergence as a world economic power also was a primary concern.

In 1996 Russia saw the presence of Primakov in the Ministry of Foreign Affairs, Western sanctions against Iraq, and the election of a hard-line government in Israel as creating conditions in the Middle East that would favor a return to the Soviet Union's role as champion of the Arab countries in the region. Russia had a special interest in freeing Iraq from economic sanctions because Iraq was to begin repaying its substantial debt to Russia once oil exports resumed, and lucrative new bilateral deals were negotiated in 1996. For this reason, in September 1996 the United States bombing of Iraqi targets and the threat of extended international sanctions brought harsh criticism from Moscow.

Meanwhile, Russia continued cultivating relations with Iran, another international pariah. A third Kilo-class submarine went from Russia to Iran in November 1996, and the transfer of nuclear-reactor technology continued despite Western objections. In the second half of 1996, as another token of Russia's importance in the region, Primakov also sought a more active role in Arab-Israeli peace talks.

Whatever its relations with foreign countries, however, no foreign power threatened Russia's security in the 1990s, and domestic conditions were the key determinant of Russia's future. In the 1990s, Russian society, until recently held together by the forced observance of Soviet power, seemed to lack any sort of glue that could be used to combat the forces of economic fragmentation. In the early post-Soviet years, religion re-emerged as an important factor in the lives of many Russians, but cultural and intellectual institutions showed signs of decline (production of art, literature, and scientific books dropped sharply in the mid-1990s, as did newspaper publication), and citizens showed little interest in forming independent civic groups. Despite guarantees of equal rights in the 1993 constitution, minority ethnic groups have experienced serious discrimination and even violence in Russia's cities, and hints of religious intolerance have emerged as well. Social resentments have festered as the economic status of most Russians deteriorated and a new elite flaunted its wealth.

The émigré sociologist Vladimir Shlapentokh observed in 1996 that personal gain had become the most important value in Russian society and that the newly democratized government institutions offered little authority against dishonest behavior because those institutions are themselves rife with corruption. The inability of government to maintain law and order through its democratic institutions has provoked authoritarian behavior by the Yeltsin administration, whose security agencies have maintained a large share of their Soviet-era autonomy.

Optimists point to the next generation of Russians, who will have formed their civic habits independent of Soviet influence, as the basis of democratic renewal and a new civil society. The three orderly and fair national elections of 1993-96 offer some hope for this prognosis. The relative calm with which Russians have accepted the agonies of transition has provided an opportunity for new institutions to develop, but such a passive public attitude may not bode well for participatory democracy. Western influences, which were vital to the postcommunist progress of Poland, Hungary, and the Czech Republic, have penetrated Russia only in random fashion, and they met increasing resistance in the mid-1990s. That resistance has dampened the government's commitment to economic and political reform and obscured the prognosis for the transition process.

By 1996 the reforms envisioned in 1992 had reached a plateau quite short of their final goals. Cynicism, corruption, and the president's long period of inactivity had sapped the momentum of reform programs, and an entrenched bureaucracy blocked further initiatives. In 1997 Russia remained an international power in some respects, but its search for ways to preserve that status was increasingly uncertain.

March 31, 1997

* * *

In the months following the preparation of this manuscript, several events of importance occurred. In April 1997, shortly after the United States Congress ratified the controversial Chemical Weapons Convention outlawing the manufacture and sale of chemical weapons, the State Duma refused passage on the grounds that the cost of destroying Russia's chemical weapons supply, the largest in the world, was prohibitively high. Although the Duma promised to reconsider the measure in the fall of 1997, its decision caused consternation in the United States, which had expected reciprocity on that issue.

In the spring of 1997, Russia continued to affirm its commitment to craft a foreign policy independent of international opinion. In April an official Moscow visit by Iranian head of parliament Ali Akbar Nateq-Noori--one day after a German court had found Iran guilty of assassinating exiled dissidents--was met by expressions of friendship from President Yeltsin. There were indications that Russia's military and economic deals with Iran, criticized sharply in the West because of Iran's support for terrorist groups, would continue or expand. Yeltsin and Minister of Foreign Affairs Yevgeniy Primakov also expressed support for Syria's position in peace talks with Israel, expanding Russia's effort to reestablish influence in the Middle East.

Shortly thereafter, a Moscow summit meeting with Jiang Zemin, president of China, produced a statement reinforcing the two nations' "multipolar" foreign policy as a balance against United States domination of the post-Soviet world. The leaders signed an agreement to reduce troops and equipment along the Sino-Russian border by 15 percent. The troop maximum was set at 130,000 for each side. Neighboring countries Kazakstan, Kyrgyzstan, and Tajikistan also signed the agreement. Yeltsin announced that military-industrial entrepreneur Arkadiy Vol'skiy would head the Russian delegation to a new Sino-Russian standing committee on friendship, peace, and development scheduled to go into operation sometime in 1997. In April Russia also announced that two new guided-missile destroyers, previously intended for the Russian naval forces, would be delivered to China in 1997. However, despite official rhetoric and new agreements, in mid-1997 a substantial part of Russia's foreign policy establishment saw China as a stopgap partner until permanent relationships could be forged with the United States, Western Europe, and/or Japan. In May 1997, Japan and Russia began high-level defense talks, Japan dropped its objection to Russia's membership in the G-7 organization, and Russia showed some signs of compromise in the continuing dispute over four Russian-held islands in the Kuril chain north of Japan. Based on Japan's change of policy, Yeltsin participated as a full member in the June meeting of the newly renamed G-8.

In May Primakov's long negotiations with NATO officials yielded an agreement defining special status for Russia in NATO in return for Russia's acceptance of a first round of NATO expansion into Central Europe. The most difficult obstacle, Russia's demand that no nuclear or conventional NATO forces be deployed in new NATO member nations, was overcome by a general statement that neither nuclear nor conventional forces would be deployed under normal circumstances. Both sides claimed that the agreement vindicated their position, although NATO made no firm commitment not to deploy forces. The centerpiece of the agreement, which Yeltsin signed in Paris on May 27, is a permanent council consisting of the secretary general of NATO, a Russian ambassador, and a representative of the full NATO membership. Although Yeltsin described this council as giving Russia a veto over NATO decisions, only specific security issues are to be discussed in the new body. The alliance's major political decision-making process remains separate. The first meeting of the council took place in July.

The agreement, officially termed a "founding act," is not legally binding and did not require ratification by the parliaments of the signatory countries. Having signed the act, Russia officially ended its objections to full NATO membership for the Czech Republic, Hungary, and Poland, which are expected to become full NATO members in 1999. The agreement also improved the prospect that the Russian economy would benefit from closer contacts with the West. Public reaction in Russia was muted, although nationalist politicians claimed that Russia had sustained a serious diplomatic defeat.

Meanwhile, the status of international arms treaties remained unclear. In July talks among the thirty signatory nations of the CFE Treaty--including Russia and all the NATO countries--yielded Russia some concessions on the ratio of NATO to Russian conventional arms in Europe. However, four CIS countries--Azerbaijan, Georgia, Moldova, and Ukraine--had objected that relaxation of CFE restrictions on Russia's flank quotas for troop deployment in or near CIS countries would threaten their national security. The final treaty modification made overall force reductions in Europe but did not include the limitations on NATO forces in Central Europe that Russia had demanded in return for approval of NATO expansion.

As of June 1997, Yeltsin had not made a renewed effort to gain State Duma ratification of the START II agreement, although he had promised President Clinton at the Helsinki summit that he would do so. At Helsinki the United States had eased some terms of START II to improve the treaty's prospects for passage in the Duma.

In May President Aslan Maskhadov of Chechnya (Chechnya-Ichkeria) signed a peace treaty with Russia. In the very brief treaty, both sides renounced the use of force against the other. The official categorization of the agreement as a peace treaty was a concession by Russia, which earlier had refused to sign such a treaty with what it considered an integral part of the federation. The document did not mention independence for the breakaway republic--a potentially divisive issue that both sides avoided in the interest of achieving peace--but the form of the treaty was that used between two equal states subject to international law, hence a tacit recognition of Chechnya-Ichkeria's independence.

Russia also signed agreements for economic aid to Chechnya, and Yeltsin's negotiator Boris Berezovskiy offered several major concessions, including an official apology for all of Russia's historical incursions into Chechnya, in an effort to stave off full independence. Meanwhile, radical Chechen groups continued kidnappings and terrorist acts, casting doubt on the authority of the Maskhadov government.

Chechnya continued to occupy a critical position in Russia's pipeline politics, which became increasingly complex in the mid-1990s as more countries sought participation in the oil wealth of Azerbaijan and Kazakstan. As its price for allowing oil to flow through Chechnya en route to export from Novo-rossiysk on the Black Sea, Chechnya demanded recognition as a full partner in the endeavor. Because an alternative line through Georgia and Turkey would eliminate both Novo-rossiysk and Chechnya--hence all Russian participation--from lucrative new shipments, in July Russia signed a trilateral agreement with Azerbaijan and Chechnya, granting Chechnya an equal role. Income from oil shipments was expected to be an important element in stabilizing Chechnya's still rocky internal security situation.

The international Caspian Pipeline Consortium, founded in 1992 to bring oil from Kazakstan to the West, has been plagued by internal friction among partner companies, which represent six countries (Britain, Italy, Kazakstan, Oman, Russia, and the United States). In early 1997, however, the consortium showed signs of agreement on the Russian section of a new line that would deliver oil from Kazakstan's Tengiz fields to Novoros-siysk. In April Yeltsin signed the December 1996 agreement on division of shares among the consortium partners. Increased United States activity in the region's new oil fields was a major reason that Russia signed the trilateral pipeline agreement.

Russia's relations with other CIS countries continue to be unsettled. In April both houses of Russia's Federal Assembly ratified the treaty permitting long-term deployment of Russian forces in Armenia. This move caused alarm in neighboring Azerbaijan (still fighting and negotiating with Armenia over Nagorno-Karabakh), Georgia (through which additional Russian troops would pass en route to Armenia), and Turkey (near whose border additional Russian troops might be stationed). Disclosures of secret deliveries of Russian arms to Armenia in 1994-96 already had alarmed Azerbaijan, and the military treaty seemingly committed Armenia to a long term as a Russian satellite. However, the terms of the July 1997 treaty with Azerbaijan implicitly reduced the prospect of future Russian support for Armenia in the Nagorno-Karabakh conflict. In May a friendship treaty with Ukraine resolved division of the Black Sea Fleet and jurisdiction in Sevastopol', the fleet's largest port, among other treaty provisions.

Meanwhile, other CIS countries continued to deemphasize CIS (largely Russian) investment and trade agreements in favor of Western and Japanese deals with more favorable conditions. According to an April 1997 report, 90 percent of Kazakstan's enterprises had at least some investments from non-CIS sources. Because Kazakstan's president Nazarbayev was a staunch supporter of CIS integration, this statistic was especially bad news for Russia's efforts to bind together and dominate the organization. In 1997 Russian authorities also were alarmed by an incipient trilateral agreement among Azerbaijan, Georgia, and Ukraine, which began cooperating in several critical areas of security and economics where Russia had enjoyed substantial influence.

In May 1997, Yeltsin's Security Council completed a long-awaited national security doctrine. The document, unpublished but leaked extensively, included economic, foreign-policy, and military elements in a general description of Russia's present security situation and its primary goals. Improvement of domestic economic and social conditions, rather than geopolitical advancement, was listed as the primary requirement for enhanced national security. The most aggressive element of the statement was a revocation of Mikhail Gorbachev's pledge that the Soviet Union never would initiate the use of nuclear weapons in a war. The new stance was described by Western experts as a volley in the diplomatic conflict over NATO expansion and a reflection of the acute deterioration of Russia's conventional forces. Because the legislative branch had not been consulted in the creative process, experts doubted that the anti-Yeltsin State Duma would grant the approval necessary for the doctrine to become official.

Russia's defense establishment remained unsettled in mid-1997 after Yeltsin, long dissatisfied with the pace of military reform, fired Chief of Staff Viktor Samsonov and Minister of Defense Igor' Rodionov. General Igor' Sergeyev was named to replace Rodionov. At the same time, Yeltsin created two new military reform commissions. The first, headed by Prime Minister Chernomyrdin, was to deal with military construction; the second, headed by First Deputy Prime Minister Chubays, was to deal with military finances. Experts saw these moves as a victory for civilian officials who advocated reassigning the military's "hidden reserves" rather than allocating additional funds for military reform. In July Yeltsin outlined a comprehensive plan for reducing the military and consolidating the five branches into two, again emphasizing reallocation of existing resources. The drafting procedure and content of the plan attracted strong criticism from government and military officials.

Russia's internal security situation also remained unstable in mid-1997 as the country's crime wave continued. The Ministry of Internal Affairs (MVD) reported a reduction of 12 percent in overall crime in the first quarter of the year, with substantial drops in murders, assaults, thefts, and robberies. However, there was no evidence of a reduction in mafiya protection activity and the corruption and crime associated with it. The 7,500 murders committed in 1996 were the most ever for a single year. Meanwhile, the MVD's "Clean Hands Campaign" reported that in 1996 some 21,000 police officials had been fired because of misconduct, including mafiya connections. Capital punishment continued to be a sensitive political issue: although Russia was obligated by its 1996 admission to the Council of Europe to end capital punishment, the crime wave continued to bolster strong public feeling against such a change. Human rights organizations estimated that 140 people were executed in 1996, the fourth-largest total in the world.

The prison system continued to suffer grave problems in 1997. In April an Amnesty International report listed torture, lack of bail, acute crowding, epidemics of tuberculosis, and long periods of pretrial detention as frequent conditions in Russia's prisons and jails. An estimated 300,000 prisoners (up from 233,000 in 1994) were in pretrial custody, which lasted for an average of ten months. In mid-1997 the Government announced an amnesty program that would affect as many as 440,000 Russian prisoners, targeting mainly those in pretrial detention. Because Russia's incarceration rate was about ten times that of West European nations, its 1997 prison budget was much higher than its health care budget. Prison reform received little support either from Minister of Internal Affairs Anatoliy Kulikov or from the majority of State Duma deputies.

Overdue wages were another continuing result of the national budget deficit. By midyear Russia's workers were owed an estimated US$9.5 billion, and the amount continued to grow. Although the nationwide labor shutdowns called by unions in November 1996 and March 1997 had failed to attract wide support, the number of local shutdowns increased noticeably in the first half of 1997. Miners, doctors, and teachers blockaded roads and railroads and occupied administrative buildings to protest continued wage arrears. Teacher strikes affected nineteen of Russia's eighty-nine subnational jurisdictions, and only fifteen jurisdictions did not owe money to their teachers.

Partly because of low budget allocations for health, in 1997 new reports indicated that Russia's health crisis was worsening. Although the life expectancy for males increased from 57.3 years to 59.6 years between 1994 and 1996, the drinking and smoking habits of Russians, together with continued air pollution in many areas, kept mortality rates from cardiac and circulatory diseases more than twice as high as those in the United States. The incidence of infectious and parasitic diseases continued to increase. Although a major diphtheria vaccination program in 1995-96 radically reduced the incidence of that disease, tuberculosis cases increased sharply, especially in Russia's prisons. In 1997 the minister of health predicted that sexual promiscuity and drug addiction would cause 800,000 new cases of HIV infection by the year 2000.

Meanwhile, the official government population prediction for 2010 called for a decrease of 7.3 million people, and one Russian expert predicted a decrease of 12 million by that year. In that period, fertility was expected to decline because of health problems among women of childbearing age and because of the overall aging of the population.

The overall economic situation continued to be overshadowed by the Government's inability to balance its budget. Continuing its effort to improve tax collection--the most often cited way of paying overdue state salaries and pensions--in May the Chernomyrdin government submitted a new tax code to the State Duma for approval. Under Yeltsin's implicit threat to dissolve the Duma, the body gave preliminary approval to the code in June. Meanwhile, major enterprises continued to avoid full tax payment. According to an April 1997 State Taxation Service report, Gazprom, the natural gas monopoly, used 140 separate bank accounts to shelter its assets. Of the Government's list of eighty leading tax-evading enterprises, fifty-three were in the fuel and energy industry.

Only 57 percent of projected revenues were collected in the first quarter of 1997, leaving arrears of US$12 billion, and only 63 percent of budgeted expenditures were made. By May the Government owed an estimated US$2.2 billion in pensions, US$2.3 billion in wages to state workers, and US$1.4 billion in child support allowances. The shortfall also reduced economic investment, which in the first half of 1997 was only about 95 percent of the amount invested in the same period of 1996.

In response to the shortfall, Minister of Finance Anatoliy Chubays submitted a proposal to the State Duma for sequestration of allotted funds, warning that the Government could not continue functioning if major cuts were not made. The revisions called for reducing spending by US$19 billion. Despite strong and widespread opposition to the level and allocation of the cuts, in June the Duma adjourned for its summer vacation without submitting an alternative plan.

Meanwhile, the "capital flight" of hard currency (see Glossary) from Russia continued at a rapid rate in 1997. International police authorities estimated that US$1 to US$2 billion dollars left the country every month, much of it connected with illegal activity and invested abroad by Russian émigrés. Experts identified this trend as a sign of continuing low confidence in the domestic economy.

For the first six months of 1997, Russia's GDP shrank by 0.2 percent, casting doubt on Yeltsin's July assertion that the economy had "turned the corner." Positive economic news of early 1997 included the continuing reduction of inflation, which reached an annual rate of 14.5 percent in June--the lowest rate since Russia's independence. Also, the reorganization of the Government in March caused the IMF to resume monthly payments on Russia's US$10 billion loan, which had been suspended since December. The World Bank also announced a two-year loan of US$6 billion to help pay overdue wages and pensions.

In April a series of presidential decrees moved Government policy closer to privatization in some sectors, although strong political support for the giant monopolies in the State Duma guaranteed that Deputy Prime Minister Boris Nemtsov would have a hard struggle in breaking them down. According to the new privatization goals, Government subsidies of housing and municipal services, which were budgeted at US$27 billion in 1997, were to be reduced. (The average Russian paid only 27 percent of such costs in 1997.) According to a sliding scale, subsidies would reach zero in 2003, although some state housing support would remain for the neediest individuals. In the spring of 1997, local increases in utility and housing costs brought demonstrations in St. Petersburg, and Moscow's powerful mayor, Yuriy Luzhkov, objected strongly to the national proposal.

Provisions were made for substantial modification of the pricing and/or structure of the state-controlled electric power industry and the railroad network, and Yeltsin ordered the sale of 49 percent of the telecommunications giant Svyazinvest, division of which was one of the most controversial privatization issues. In July 25 percent of total Svyazinvest shares were won at auction by a group including Russia's Uneximbank and German and United States investors. Because of the backward state of Russia's telephone system, telecommunications is considered potentially one of Russia's largest growth industries. The results of the Svyazinvest auction, which Boris Nemtsov touted as fully free and equitable, set off loud protests from the powerful business interests that failed to acquire shares. The issue threatened to split the large-business bloc that had supported Yeltsin before and after the 1996 election.

Russia's nineteen railroad companies, which accounted for 78 percent of freight traffic and 40 percent of passenger traffic in 1997, were to be removed from direct control of the Ministry of Transportation, under whose management fast-rising railroad fees had added enormous amounts to the overhead of railroad-dependent industries such as steel and coal. At the same time, rail customers owed the lines an estimated US$1.1 billion in 1997, and the companies' equipment was in desperate need of modernization.

In May Yeltsin announced that Gazprom henceforth would be run by a state commission, depriving the gas monopoly of the financial freedom that had gained it billions of dollars of untaxed profits. Yeltsin already had stripped Gazprom of its exclusive right to develop new natural gas deposits, and the Government now expected to recover much of Gazprom's unpaid taxes through the new commission. Prime Minister Chernomyrdin remained a protector of the industry's special status, however.

In April Yeltsin renewed his appeal for Russia's consumers to "buy Russian" to support the domestic economy in the face of increased consumption of imported consumer goods. However, Russian manufacturers faced a circular dilemma: consistently low quality kept the demand for Russian goods from expanding, but firms were unable to improve quality without new profits or increasingly scarce government subsidies.

In politics, reformist members of the Kremlin's younger generation advanced in Yeltsin's Government reorganization. Boris Nemtsov, thirty-seven, gained immediate popularity with ordinary Russians in his new post as deputy prime minister by attacking monopolies and bureaucratic corruption; in April Nemtsov supplanted Aleksandr Lebed' as Russia's most trusted politician in two nationwide polls, although most experts called his reform program virtually impossible. Experts in Russia already were speaking of Nemtsov as the likely presidential candidate of the "young reformers" in 2000. In April forty-three-year-old Sergey Yastrzhembskiy, who had gained wide approval as Yeltsin's press secretary, was named deputy chief of staff and foreign policy coordinator while retaining his previous position.

The struggle for power continued at the echelon of government immediately below Yeltsin. The resignation of Chernomyrdin protégé Petr Rodionov from his post as Minister of Fuel and Energy deprived the prime minister of his most important Government ally. However, Chernomyrdin's position still gave him substantial power vis-à-vis Chubays, an important factor in Yeltsin's ongoing policy of checking the ambitions of his most powerful subordinates. (Experts also considered the presence of Nemtsov and Valentin Yumashev, whom Yeltsin made his chief of staff in March, as additional factors preventing Chubays and his powerful business allies from dominating the reform agenda.)

Human rights continued to have strong political ramifications in mid-1997 when both houses of the Federal Assembly passed a law restricting the activities of all but four "traditional" religions. The Russian Orthodox Church received special status; no other Christian religions were included in the "traditional" category. The law, successor to legislation introduced unsuccessfully by nationalist and communist factions earlier in the 1990s, attracted strong condemnation from the Vatican and human rights groups and strong support from the Russian Orthodox hierarchy and the Communist Party of Russia. In July Yeltsin vetoed the law--which experts saw as evidence of growing anti-Western sentiment in Russian society--as a violation of the constitution's human rights guarantees. The fate of that law, and the unresolved disputes between the executive and legislative branches over budget cuts, privatization, military reform, and tax collection were signs that Yeltsin's new government team still faced complex problems in their reform campaign.

August 20, 1997
Glenn E. Curtis

Data as of July 1996


  • Introduction
  • Historical Setting: Early History to 1917

  • Historical Setting: 1917 to 1991

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