RUSSIA - Bank Mergers

On Aug. 25, 1998 Potanin's Uneximbank (4th largest bank in Russia), Khodorkovsky's Menatep (7th largest) and Gussinsky's Most Bank (17th) agreed to merge to withstand pressures from the financial crisis. They would each

place 51% of their shares into a separate holding company by Jan. 1, 1999. Each will hold a third in the holding company. By July 1, the three banks combined had assets of Rbs67 bn ($8.3 bn) and capital of Rbs9.5 bn ($1.2 bn), of which Uneximban accounded for Rbs5.1 bn. On Aug. 24, National Reserve Bank (NRB) announced a merger with Inkombank, which reportedly had losses of Rbs2.4 bn ($300m).

Chernomyrdin is a moderate centrist and a veteran apparatchik. He began his career as an industrial worker in Orenburg. He joined the Communist Party in 1961 and studied engineering before becoming deputy minister for the gas industry under the Brezhnev regime in 1982. He became gas minister in late 1985, after Gorbachev's coming to power. He founded Gazprom in 1989 and restructured the gas sector with remarkable efficiency. In May 1992, Yeltsin made him acting minister of fuels and energy. Having proved his efficiency by reorganising that ministry, Yeltsin made him prime minister in December 1992 to succeed unpopular reformer Gaidar.

When he was the head of Gazprom, Chernomyrdin won the praise of both local industrialists and foreign companies. He helped develop the gas industry into a sector more efficient and productive than that of oil. In 1990, he adopted a bold marketing strategy for Gazprom and entered into a joint venture with Wintershall of Germany. Since then several joint ventures have been formed between Gazprom and foreign companies. Capitalising on close links in the industrial sector, including the military industries, in 1992 he helped establish a domestic military-industrial consortium called Rosshelf, owned 51% by Gazprom, to develop the huge Stokmanovskoye gas field in the Barents Sea as well as become involved in major gas-related projects on Sakhalin island and other parts of Russia.

Gradually after his appointment as PM, Chernomyrdin realised the depth of Russia's economic crisis. Although at first he resisted radical reforms, particularly those formulated by Gaidar and Boris Fyodorov, in February 1993 he began to back some of the measures. During most of the crisis period in the following months, Chernomyrdin sided with Yeltsin. After the president announced on March 20, 1993, that he was imposing "special" rule, he defended Yeltsin's policies in an address to parliament urging the deputies to spare Russia a catastrophe.

After the bloody October 1993 showdown between Yeltsin and his opponents, the centrists began to act behind the scenes. As soon as Chernomyrdin was asked by Yeltsin to reshuffle the government, in January 1994, the president was confronted with a list of centrist figures proposed for key posts and with a list of reformists to be demoted. One proposal by Chernomyrdin was monetary union with the fellow Slav republics of Belarus and Ukraine, as a precondition to granting them new loans and rescheduling their debts to Moscow. Gaidar, as deputy PM in charge of the economy, was strongly opposed to this and to the way he was to be demoted; he resigned. Boris Fyodorov resigned as finance minister as he was to be demoted as well. Chernomyrdin quickly asserted himself as a moderate reformist with a gradual approach, insisting that Gaidar's "shock therapy" was bad, and set out on a course acceptable to the IMF and other international bodies.

Soon after he launched a "stabilisation" plan based on containing inflation, with a stable rouble and IMF support. Although he promoted financial

austerity, he carried out Yeltsin's orders for a more relaxed policy in preparations for the mid-1996 presidential election. He increased subsidies and exhorted payment of salary arrears, despite a towering budget deficit. This and other measures, together with campaign funding from the oligarchs, helped Yeltsin get re-elected.

In May 1995 Chernomyrdin had set up his own party, Our Home Is Russia, on the advice of President Yeltsin, as a moderate centrist block. At the general election on Dec. 17, 1995, Our Home won 10.13% of the votes in the proportional system for allocating 225 Duma seats. It came third, next to the Communist Party (22.3%) and Zhirinovsky's LDPR (11.18%). In a single-mandate constituency voting to fill the other 225 seats, Our Home got 10 seats. In total, it got 54 seats, compared to 158 for the Communist Party, 50 for the LDPR and 45 for the liberal Yabloko of Grigory Yavlinsky. Our Home became the second biggest block in the Duma.

Our Home's parliamentary chairman, Alexander Shokhin, is one of Chernomyrdin's closest allies, a prominent economist and a deputy speaker. After his government was fired and Yeltsin appointed Kiriyenko in his place, in March 1998, Chernomyrdin got Shokhin and Our Home to vote for the new government in the final round. That tactic helped Chernomyrdin keep some links with the Kremlin, through presidential chief of staff Valentin Yumashev and through Berezovsky.

Shokhin is to play a key role now that Chernomyrdin has regained the premiership. Before being elected to the Duma in late 1995, he built up Our Home as its second-in-command next to Chernomyrdin. He was deputy PM for foreign economic relations and minister of the economy in Yegor Gaidar's government and for a while in Chernomyrdin's cabinet. After backing Kiriyenko's government in early April 1998, Shokhin urged the Kremlin to be "generous in its victory". Otherwise, he warned, the defeated Duma might seek revenge in the autumn. He added: "Many people give this government half a year". It actually fell in five months.

Shokhin was the only senior survivor from the first Russian cabinet of 1991. Previously, he was a professor of economics. He worked closely with Prof. Yevgeny Yasin - a man whose name has been linked to economic reform since Gorbachev tried but failed to breathe some reformist life into a decaying Communism in the late 1980s. Yasin and Shokhin helped set up a club of reform economists working in the government. But as many of those who were part of it ceased to play leading roles, the club was wound up in 1994.