Chapter III.
Regional Developments

E. Russian Federation and the New Independent States

a) Russia

In 1999, the May sacking of Prime Minister Yevgeny Primakov created a certain tension in Russian politics, but Prime Minister Vladimir Putin gained popularity through his hard-line stance on ending the Chechnya conflict, and the political forces behind him leapt ahead in the December Duma elections. President Boris Yeltsin resigned on 31 December, replaced by Prime Minister Putin as acting President. Economic conditions were comparatively favorable.

• Domestic political situation

  In early 1999, Prime Minister Primakov was steering Russian politics on a stable course, resulting in the IMF agreeing in principle to resume financing, Russia's greatest concern. However, President Yeltsin sacked the Prime Minister on 12 May, immediately prior to Duma deliberations on the bill for Yeltsin's own impeachment, throwing the political situation into turmoil. However, the Duma rejected the bill on the 15^th, and Prime Minister Sergei Stepashin was approved on the 19^th, averting political fluidity. Three months later, Prime Minister Stepashin too was dismissed, but with the public announcement of December Duma elections, the Duma took a conciliatory approach, approving Prime Minister Putin's appointment on 16 August.

  In the midst of these political developments, the 7 August invasion of Dagestan by Chechen armed forces caused the Chechnya conflict to flare again, with Prime Minister Putin taking an uncompromising stance to conflict cessation. The relative success of his military strategy pushed the Prime Minister's popularity to a swift upward curve.

  The Duma elections were held on 19 December. In the early days of the election battle, former Prime Minister Primakov's Fatherland-All Russia bloc garnered most of the attention, but Prime Minister Putin's popularity propelled forward the Unity bloc, the Union of Right Forces, and other administration supporters, providing the Prime Minister with a foothold in the Duma and solidifying his position as the strongest candidate in the 2000 Presidential elections.

  Despite repeated health problems, President Yeltsin was insistent that he would stay in office until his full term was completed in summer 2000. However, when the popularity of his chosen successor, Prime Minister Putin, was borne out in the Duma elections, he resigned on 31 December, appointing the Prime Minister as acting President. The March 2000 Presidential elections subsequently saw the acting President elected as Russia's next President.

• Economic situation

  Contrary to predictions of the August 1998 financial crisis sparking the re-emergence of hyper-inflation, the crash of the ruble, and other economic deterioration, the Russian economy remained generally robust in 1999.

  More specifically, inflation calmed to around 40% compared to 84% in 1998, while the ruble came back from the crash prompted by the previous year's financial crisis to hold at a stable 20-27 rubles to the U.S. dollar in 1999. Manufacturing production began to record positive growth as of March, and the trade surplus rose to more than US$30 billion. This strong economic performance improved tax revenues and moved the GDP into the black. The financial system also began to stabilize.

  Factors behind Russia's economic buoyancy included the jump in and continued strength of international prices for oil, Russia's main export, as well as the recovery of domestic import substitute industries as a result of the 1998 ruble devaluation. In addition, the IMF and the World Bank resumed negotiations for financing as of summer 1999, and the Paris Club of international creditors agreed to defer Russia's public debt payments, which also contributed positively to the Russian economy. The adoption of the next year's Federal budget, a process which usually goes over into the next fiscal year, proceeded relatively smoothly in 1999, demonstrating Russia's economic and political stability to both domestic and international observers.

  At the same time, some quarters see that Russia's economic recovery has lost momentum since the second half of 1999, and the sustainability of the current recovery, as well as that of the favorable conditions underpinning the recovery, remains unclear. Russia has yet to institute such basic reforms as the restructuring of former state-run giants and land liberalization, while its cumulative external debt is weighing heavily on the economy. Domestic investment, non-existent in the long period since the collapse of the Soviet Union, began to pick up gradually as of mid-1999 in response to the buoyant economy, but counterbalancing this positive sign is doubt over whether Russian commercial banks, hard-hit by the 1998 financial crisis, can sustain a stable and adequate supply of investment capital. Domestic consumption also shows no sign of recovery, and the current high oil prices on international markets will not necessarily continue, with indications that the 1999 recovery will be tottering upon a very fragile base. Further, IMF financing, resumed in summer 1999, has been suspended since the second round due to Russia's delay in implementing economic structural reforms. The discovery of money laundering through a New York bank in summer 1999 once again reduced the international credibility of the Russian economy, a painful blow for the Government.

  The Russian economy therefore left the worst behind in 1999, but it would be premature to judge that the economy had entered into a full-scale recovery phase.

• External relations

  In 1999, Russia continued to regard as the basis of its diplomacy an emphasis on national interest and the promotion of foreign policy with a balanced focus in all directions, aimed at building a multipolar world. In addition to promoting relations with the Commonwealth of Independent States (CIS), Russia also worked to strengthen ties with Europe and the Asia-Pacific countries.

  In his annual address in March, President Yeltsin noted that while Russia's foreign policy would be based on its traditional emphasis on a multipolar world and national interest, the Government would also pursue cooperation with the international community and avoid isolation, while bearing in mind Russia's particular characteristics. He also pointed out that relations with the CIS, G8, Europe, the United States, Asia and the Near and Middle East would be strengthened, while also promoting economic diplomacy.

  In the context of the Kosovo issue, Russia strongly opposed the NATO bombing of Yugoslavia, clashing with the United States and other NATO members, but eventually made its presence felt in brokering peace. In terms of Russia-U.S. relations, differences in the positions of the two countries became particularly striking over the issue of amendment of the Anti-Ballistic Missile Treaty, but bilateral consultations continued on this and other issues.

  In late 1999, with Europe and the United States expressing strong concern over the Chechnya issue, Russia worked to secure its position in the international community, strengthening, for example, its ties with China. Russia also signed the Treaty of Creation of the Union State of Russia and Belarus in December.

b) The New Independent States

Where the economic situation in Kazakhstan had remained bleak due to factors such as the impact of the 1998 Russian financial crisis, the 1999 recovery in oil prices and other factors spurred a recovery. Incumbent President Nursultan Nazarbaev was re-elected in the January presidential elections. Failure to push through reforms contributed to on-going economic stagnation in the Ukraine, but incumbent President Leonid Kuchma was nevertheless re-elected in the November presidential elections, ensuring the continuation of the President's reform course for the moment. The Kyrgyz Republic actively pursued economic reform under the leadership of President Askar Akayev, but economic conditions have remained harsh since the Russian financial crisis. In Tajikistan, a protracted civil war was finally ended and a peace process launched. A national referendum on amendment of the constitution was held in September which established the legality of religious political parties, mainly including the former anti-government forces. Tajikistan's first multi-candidate presidential elections were held in November, resulting in the return of incumbent President Emomali Rakhmonov.

The general political situation remained stable in Uzbekistan, with the exception of a terrorist bombing by Islamic extremists in February in Tashkent which targeted President Islam Karimov. The August kidnapping incident in the Kyrgyz Republic involving Japanese geologists (see Chapter I, Section B.5 for details) highlighted the permeation of Islamic extremists into Central Asia. In Armenia in October, a group which was apparently dissatisfied with the Government's response to the Nagorno-Karabakh issue shot to death the Parliamentary Speaker and the Prime Minister in the Parliament building.

Belarus signed the Treaty of Creation of the Union State with Russia in December, which lays out modes and directions for union while maintaining the autonomy of both countries as states.

In April, Azerbaijan, Uzbekistan and Georgia withdrew from the CIS Treaty on Collective Security, but construction of a new security mechanism is being explored in Central Asia in response to fears over the penetration of Islamic extremists.

Japan is working to strengthen its ties with the NIS countries as part of its "Silk Road diplomacy." Georgian President Eduard Shevardnadze visited Japan in March, followed by Kazakhstan President Nazarbaev in December, while a number of other high-level visits were also made to Japan from the NIS. From Japan, Foreign Minister Koumura visited Azerbaijan and Uzbekistan in May, and State Secretary for Foreign Affairs Keizo Takemi visited Central Asia in August.