Russia's Unity Challenges Communists in Duma Election (Update4) 12/20/99 9:2 (New York)
Russia's Unity Challenges Communists in Duma Election (Update4)
(Adds individual seats; updates bonds, stocks.)
Moscow, Dec. 20 (Bloomberg) -- Russian voters unexpectedly backed a new party that supports President Boris Yeltsin's government, ending the communists' hold on parliament and clearing the way for new cooperation that could accelerate economic reforms.
The Communist Party won 24.4 percent in Sunday's election, followed by Unity, a party formed only in September and endorsed by Prime Minister Vladimir Putin, with 23.7 percent, based on a tally of most votes. Unity probably will work with free-market reformers in the Union of Right Forces, which won 8.7 percent, and other anti- communist parties; the communists' only likely ally is Moscow Mayor Yuri Luzhkov's Fatherland-All Russia, which won 12.1 percent.
The outcome is a blow to the Communist Party and a victory for Yeltsin's government, which benefited from Russians' rising support for its war in Chechnya. Russian stocks and bonds rallied.
``It's really good news that (the Communist Party) is looking pretty isolated,'' said Nancy Herring, director of research at Regent European Securities in Moscow. ``The Duma will be pragmatic. It will look for concrete solutions and not ideological debate.''
Russia's benchmark RTS stock index, which is up more than 100 percent this year, jumped 9.7 percent today to 131.87, its highest since July, following the better-than-expected showing by pro- government parties. Russia's Eurobond due 2007 gained, with its yielding falling 118 basis points to about 21.2 percent, its lowest since just before the government defaulted in August 1998 on most of its Treasury debt.
Turnout among the 107 million voters was more than 55 percent.
Support for War
Unity shot to number two in the polls days ahead of the vote on rising support for Putin's leadership of the war in Chechnya, which has dominated his four months in office. More than two-thirds of Russians support the war, according to recent polls.
Putin's endorsement of the party in recent weeks helped it benefit from the prime minister's soaring popularity, mainly for his handling of the war against Islamic militants in Chechnya. Unity's strong showing will help Putin's campaign to succeed Yeltsin in a vote next June.
``This is a consolidation of the role of Vladimir Putin,'' said Igor Shabdurasulov, first deputy of Russia's presidential administration. ``This bloc is focused on creating Putin's majority in the Duma. . .and oriented on the support of Putin in the presidential election campaign in 2000.''
Emergencies Minister Sergei Shoigu, a leader of the party, receives almost as much TV coverage as Putin, as he jets around the country to natural and manmade disasters, including the war.
Working Minister
``Shoigu is the only minister who actually works,'' said Vladimir Plashinsky, 42, a computer worker who voted for Unity.
The vote is seen as a referendum on the war in Chechnya, which so far appears to be going Moscow's way. If that changes in coming months, it would completely reshape the political landscape, said Anatoly Chubais, a former finance minister and member of Union of Right Forces as the votes were being tallied.
The government already lost a disastrous war in Chechnya in 1994 to 1996 in which an estimated 80,000 were killed.
``The whole building would shake,'' Chubais said in a TV interview. ``It is clear today that the situation in Chechnya is the key to the whole political process in Russia.''
Analysts widely credited Yeltsin with helping found Unity, which also drew support from a number of regional governors. Government-controlled media was harshly critical of Fatherland-All Russia, while giving extensive coverage to Unity.
Yabloko, led by Grigory Yavlinsky, a Western-trained economist, and former Prime Minister Sergei Stepashin, is the only party that came out against the war during the campaign.
Yabloko won 6.1 percent of the vote, according to preliminary returns, while Vladimir Zhirinovsky's Liberal Democratic party, which traditionally backs Kremlin policies, won 6.2 percent.
Big Surprise
The Union of Right Forces coalition may be the biggest surprise in the election. According to some pre-election polls, the party wasn't expected to even win the 5 percent minimum required to get into the lower house of parliament, which the Communist Party has dominated since 1995.
``It is not just a victory, it is a stupendous victory,'' said former Prime Minister Sergei Kiriyenko, who helped form the party after Yeltsin fired him August 1998 following the government's decision to default on its Treasury debt and let the ruble fall.
The party brings together pro-market reformers responsible for economic policy over the past eight years. Another party leader, former Prime Minister Yegor Gaidar, said after the vote that the Union of Right Forces probably would vote with Unity in the Duma.
``You have a Duma more open to reform,'' said Roland Nash, an analyst at Renaissance Capital brokerage in Moscow.
Independents
Half of the Duma's 450 seats will be based on the percentage of votes gained by the parties. The other half will go to individuals running in constituencies across the country.
Many of those are political independents, which means it could take two or three sessions before the final makeup of the lower house is clear. A total of 2,318 individuals ran for Duma seats.
Based on early results, the Communist Party could end up with as many as 150 to 160 seats in the next Duma, according to estimates by Russian television NTV. Unity may control between 120 and 130 seats, while Fatherland would take between 65 and 70. The Union of Right Forces would hold 30 seats, Yabloko 25, Zhirinovsky's party 18 seats -- the rest held by independents, according to NTV.
``The total strength (of parties) will depend on single- mandate seats,'' said Niklaus Sundstramm, an economist and political analyst at Citibank in London. Still, he said, ``it is beyond doubt that there was a shift from the left to the center.''
The election also include many mayoral and governors' races. Early results showed Luzhkov won reelection as Moscow mayor, defeating Kiriyenko.
Cynicism
The election was the third since the collapse of the Soviet Union and communist rule in 1991. While there now is a consensus of support for the mechanics of democracy, such as free elections, there is also growing cynicism, which has come with a decline in living standards after the government defaulted on $40 billion of Treasury debt last year and abandoned its defense of the ruble. Banks collapsed, the ruble fell about 75 percent against the dollar and many Russians lost all their savings.
``Life is bad enough as it is,'' said Larisa Lavrova, 54, a grocery store cashier. ``A new thief won't help.''
The Communist Party has dominated the Duma since the last elections in 1995, holding 119 seats and relying on support from the Agrarians and People's Power Party, neither of which ran as a party in the latest election.
The communists, who get most of their votes from pensioners seeking the security of their communist youth, a dwindling portion of the electorate, have tried to remake the party's image to attract younger people who don't remember the days of controlled prices and heroes of labor.
`No Hope'
The elderly ``think it will all come back, the youth, the hope, a better life,'' said Ira Baskina, 42, a clerk at the Russian Academy of Sciences who, along with her father, voted for the Communist Party. ``Now people have no hope.''
Putin said after voting that he hopes the new Duma will work with the government and ``effectively solve the country's problems.''
In the past, the communist-dominated Duma has at times opposed state budgets, held up laws aimed at meeting International Monetary Fund conditions and derailed Yeltsin's choice for prime minister. Russia has had five premiers in the past two years.
Relations with the fund already are strained, however, after IMF Managing Director Michel Camdessus warned the fund couldn't pay a $640 million loan installment to Russia because of political opposition to Russia's war in Chechnya. Later, the IMF said it wouldn't make the payment because Russia hadn't fulfilled terms of its loan agreement.
The presidency is the real prize. A presence in the lower house gives TV exposure to party leaders planning to pursue the presidency in next June's election. The president wields vast, almost king-like, powers such as the right to dismiss the prime minister, dissolve the Duma and issue decrees.
A strong showing by Fatherland-All Russia would have benefited former Prime Minister Yevgeny Primakov, who announced Friday he plans to run for president, while stronger-than-expected support for Unity helps Putin, whom Yeltsin has said he favors as his successor in the presidential election next June.
Fatherland is in opposition to Yeltsin. During his seven months as prime minister, Primakov proposed reducing presidential powers and launched investigations of some Yeltsin allies.
``I can't say this is success, or a landslide,'' said Luzhkov, founder of Fatherland. ``It's moderate results that we can assess, taking into account the wild pressure put on our block.''
--Laura Zelenko and Sabrina Tavernise in the Moscow newsroom (7- 502) 937-6770, with reporting by Natalia Olynec and Marta Srnic/ru/ck/lz