. Last Updated: 07/27/2016

Chubais' Demise Means Return to Bad Habits

When Yegor Gaidar and Boris Fyodorov resigned from the Russian government in January 1994, the foreign exchange market crashed 30 percent. Yet, over the past few days, despite the dismissal of Anatoly Chubais, the ruble barely moved.

Does this mean, as one upbeat stock broker told me, that "reforms are now bigger than one man"? In other words, can we all just ignore Chubais' departure?

In the short term, probably. But without any dynamic liberal economists in positions of power, it is hard to see where the government will find the impetus for continuing reforms in the long term, or even defending those already made.

It is worth looking closely at the parallels with January 1994 when Gaidar and Fyodorov resigned from their leading roles, once again because of the disappointing performance of reformers in parliamentary elections.

After that initial adjustment little changed on the surface for about six months. Pundits hastily drew the lesson that the radical reformers were unnecessary, and that pragmatist centrists like Prime Minister Viktor Chernomyrdin were more effective.

But with no real economic program and with blood ties to reactionary bureaucracies and monopolies, the 1994 government of centrists quickly succumbed to pressure for spending, and slowed reform. The result was Black Tuesday and a bout of near record inflation.

The currency market's short-term response to the resignations of the cabinet's leading reformers has been much milder this time around. That is largely because many fail-safes are in place, thanks mainly to Chubais, which were absent in 1994.

The government is now bound by a legally valid and responsible budget. The consequences of breaking the conditions attached to existing and pending IMF loan agreements now provide a strong incentive for the government and the Central Bank to stick to targets on spending and lending.

The government and the Central Bank are still committed to the "ruble corridor," or fixed-exchange rate policy, until after the June presidential elections.

But as in 1994, consider what will happen in six months if the government is run by people who are, at best, ineffective fellow travelers of reform.

The current rhetoric on moving from stabilization to expansion are clear signs of that. President Boris Yeltsin's hypocritical denunciation of Chubais last week shows where his sympathies lie. Of course, if the Communists win in June, all bets are off.

Don't get me wrong. It is not that the medium-term scenario without Chubais will be some sort of disaster. More likely, it just means that Russia will be trapped longer in the confusion of the past few years: high inflation and low growth. New privatization will slow, and the government will find devious ways to interfere in already privatized companies. Tax reform will drag on.

Chubais' role in the government was crucial, both for what he did and the way he did it. As one Russian commentator put it, Chubais stood for an entire "technology" of reform. Policies were coordinated between government ministries, the president's office and the Central Bank, then skillfully sold and pushed past opposition in the Duma and outside of it. The government now lacks anyone who can fill this role.

Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce.