Master tactician's blunder thwarts Russian progress

The champion of Russia's reforms, Anatoly Chubais, is caught in a corruption scandal. Unlike most Kremlin intrigues, this one threatens to derail the country from its path to change. Phil Reeves reports from Moscow.

Whatever the outcome of Russia's latest scandale du jour, one fact is clear: the country's transition towards a Western-style economy will now be even slower and more tortured. All this, thanks to an astonishing blunder by a man who was meant to be a master tactician: Anatoly Chubais.

A week ago Mr Chubais was in an enviably strong position in the Kremlin. Working with another young reformer, Boris Nemtsov, he was the strongest of the fractious forces behind Boris Yeltsin. Few outside the country cared that he is detested by most Russians, who see him as a gingery Rasputin who gave away the nation's riches. To Western eyes, he was a hard-headed whiz-kid who could save the Russian economy by forcing the old guard to accept a realistic budget and tax reforms. Time and again, international investors and diplomats cited his presence as a reason for optimism. Now the balloon has burst.

Even if he retains his job as First Deputy Prime Minister and Minister of Finance, Mr Chubais's position has been drastically weakened. Anxious not to dent international confidence, Boris Yeltsin refused his offer to resign last weekend, but many on-lookers believe that he cannot stay on for long. Parliament's dominant Communists are threatening to refuse to pass the crucial 1998 budget unless they receive his scalp. True, Mr Yeltsin reacts badly to ultimatums, yet his minister's long term future looks grim.

"Before Chubais had a reliable team and the full support of the president. He now lacks both," said Alexander Bevz, head of the Civil Society Foundation in Moscow. "I think he will be made a scapegoat, and that he has three months at most." The cause of his demise is surprisingly paltry, given the vast sums of money which routinely cross his desk. He received $90,000 as an alleged advance for an unpublished economics book from a company controlled by one of the main beneficiaries of several big state sell- offs. Four co-authors, all once in government, also received similarly suspicious payments. Three were fired last week; one had already been sacked over an earlier scandal. Their departure has blown a big hole in Mr Chubais's team, and an equally large hole in his credibility.

Mr Chubais, 42, was never a white-hatted hero. Rumours have long circulated about his finances. His credentials as a democrat or a liberal are scanty - as he proved by masterminding Boris Yeltsin's unprincipled election campaign last year. But the latest revelations supply the first really damaging evidence against him. Corruption is one of the biggest blights of the Russian economy; combating it is supposed to be central to his brief.

In many ways, Mr Chubais's mistake was not so much greed or stupidity as underestimating his enemies. He gunned for his rival Boris Berezovsky, a billionaire tycoon sacked from Russia's Security Council last month. Unlike most of Mr Chubais's enemies, the businessman was well equipped to reply in kind; he owns newspapers and a television station. Armed with some "kompromat" (compromising material) revenge was easy.

For Russia, the Chubais affair is untimely. There have been signs that Russia could soon register its first annual growth since Soviet times. Foreign investment was picking up; even the gloomier tea-leaf gazers were beginning to concede that Russia's fortunes may at last be turning. "This has undermined all hope for economic growth next year," said Alexander Piontkovsky, head of a Moscow think-tank, the Centre for Strategic Studies. He believes that the flight of foreign investors from the Russian market is now inevitable. For now, the mood is once again bleak and wintry.

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