Effects of the Financial Crash
The fact that
the Communist opposition represented the biggest political faction
in the Second Duma did not affect significantly the main direction
of the government’s policies, though it helped, to some extent,
correct the excesses of Gaidar-style radical liberalism. The biggest
blow to economic liberalism was dealt not by the Communist
opposition in parliament but by the August 1998 banking crisis. It
brought about a steep devaluation of the ruble, a production slump,
galloping inflation, and a drop in real incomes.
immediate aftermath of the financial crash the supporters of liberal
reforms seemed completely demoralized and almost obliterated, while
their Communist opponents now actively fought to fill government
posts with their political allies. The antiliberal forces
represented by the Communist, nationalist, and other parties and
movements advocating a state-directed economy looked set to expand
their electorates on the wave of antireformist sentiments fomented
by the crisis.
ruling bureaucracy swung somewhat to the left after the August
events and now competed with the Communists in gibes at “bankrupt
monetarists.” The authority of the president and his administration
was badly damaged by the crisis and so, too, was the prestige of the
Kremlin-sponsored Our Home Is Russia movement, which had been an
instrument in rallying regional elites behind the government.
bosses now looked for a new leader capable of consolidating
bureaucratic elites, and they found one in Yury Luzhkov, the
powerful mayor of Moscow, who had always been a loud critic of
Gaidar, Chubais, and the other ideologues of economic liberalism.
proceeded to leave Our Home Is Russia and join the new “party of
bosses” – the Fatherland (Otechestvo in Russian) movement – that was
being set up by Luzhkov. The mayor himself was now seen as one of
the favorites to win the next presidential contest, and therefore
his claims to leadership in the new party looked legitimate to the
In August 1999
Luzhkov’s “Fatherland” joined forces with another “governors’ bloc,”
the All-Russia movement, thus setting up a formidable coalition of
regional barons in the run-up to the December 1999 parliamentary
elections under the name of Fatherland—All Russia (OVR in Russian).
The regional leaders behind the merger – Luzhkov and the president
of Tatarstan, Mintimer Shaimiev – invited Evgeny Primakov, the
former prime minister and a respected politician, to lead their