Business ventures in Russia face difficult times ahead.

A doddering, bloated 68-year-old Boris Yeltsin remains a scheming, devious manipulator, hanging on to the remnants of the former Soviet Union empire. The only constants appear to be corruption and inefficiencies, at all levels of government; political chaos; and a stagnant economy, complicated by the juggling of a massive foreign debt. The Yeltsin clan, the "Family," his inner circle, has virtually paralyzed business and flows of capital with its skimming of their share from the public and private sector. (One estimate by a Russian source is that U.S. $125 billion (sic) is diverted in annual revenue from government entities alone, out of an estimated GDP of U.S. $796 billion for 1995.) The 12 Republics of the Commonwealth of Independent States (CIS), always a loose but inter-dependent federation, has devolved into sparring factions: Russia and Belarus, in an on-going but inconclusive dialog about closer links; the GUUAM alliance, of Georgia, Uzbekistan, Ukraine, Azerbaijan and Moldova, setting itself in opposition to the continuing formation of a CIS free trade zone, as of June 1999; and moving alliances based on common interests and developing economic links (such as the Turkic republics of Azerbaijan, Kazakhstan, Kyrgyzstan and Uzbekistan; or German economics links to Belarus and Ukraine). Russia's foreign debt had reached approximately U.S. $135 billion (according to CIS estimates as of 1996), with repayment being pledged from new loans. Meanwhile, the outlook for Russia's economy in 1999 is a projected zero growth or a one percent reduction in the economy. Elections to the Russian Parliament, or Duma, are scheduled for December 1999. Among the many factors to be watched are:

* Yeltsin's own manipulations, particularly his support for a functioning Duma or his efforts to sabotage the electoral process for his own purposes;
* The media control exerted by Yeltsin's crew;
* The actions of the World Bank and the International Monetary Fund/IMF, their continuing largesse and any real impact it has on the electorate;
* Development of regional and business-oriented political coalitions by the various parties and players;
* Any economic gains achieved by the Russian economy, such as might result from an increase in the price of oil;
* The desperation of the average voter, and its effect on voter turn-out among the roughly 150 million Russian citizens.

A tough call, the swing back and forth in the likely outcome of the elections can be expected till even after the polls close.

The Presidential Elections of July 2000 are an even tougher call. Yeltsin, under current law, is barred from succeeding himself. But Yeltsin's hold on power, despite his recent 2% popularity rating, is as firm yet precarious as his hold on life. Bouncing from sanitarium to high-profile political bear hugs, Yeltsin continues to lead and to exert his hold, as he shuffles and re-shuffles the power grid round him. In the past twelve months, his governance by chaos has assisted in allowing no single leader to gain the grip he refuses to let go.

The men vying for power, whose motivations may be as base as those of Yeltsin himself, include:

* Prime Minister Sergei Stepashin, who is seen as closely aligned with former Prime Minister Anatoly Chubais (who himself may be a potential candidate), is noted for his long-standing ties to Yeltsin, tough he may be capable of breaking away from the policies of Yeltsin;

* Former Prime Minister Yevgeniy Primakov, who was succeeded by P.M. Stepashin and who has wavered in whether he sees himself as a real candidate for the Presidency, but who has held a small lead in recent polls regarding possible favorites for the Presidency;

* Moscow Mayor Yuri Luzhkov, in a position to run again for Mayor of Moscow in late 1999, while keeping his options open for the 7/2000 Presidential election, has criticized the failures of the government bureaucracy but has offered no alternatives to the current systems;

* Gennadiy Zyuganov, who has previously run and lost against Yeltsin, heads the majority party (the Communist Party), in the Russian Parliament;

* Krasnoyarsk Governor Aleksandr Lebed, with a prominent showing in recent (6/99) electoral polls in Russia;

* Grigoriy Yavlinskiy, head of the Yabloko, also with a prominent showing in recent (6/99) electoral polls in Russia.

It should not be discounted that Yeltsin may push for a merger of Russia and Belarus, declaring the law on self-succession invalid. Or he may simply suspend, postpone or otherwise derail the July 2000 elections. Or he may die.

The Russian military establishment cannot be counted out. Its once proud, well-funded ranks (reeling from funding cuts estimated at roughly 80% over the last decade) are now being pummeled by continued neglect, unbridled corruption, and abuse. The military rank-and-file are sometimes reduced to stealing to feed themselves. The military has suffered years, if not decades, of decline, since the political opening of the Soviet Union commenced. But it is still a force of over one million, in a society that prizes authoritarian rule and chain of command decision-making. Some 700,000 troops were to be cut from military ranks in 1997 and 1998, on the premise that future military operations might rely more heavily on nuclear capabilities. Without question, it should not be forgotten that a nuclear arsenal of deadly dimensions is at its disposal. Gen. Leonard Ivashov, who has shown his inclination to jostle with Yeltsin in the Kosovo arena, and possibly scheme in the Byzantine tangles of power use and abuse familiar to the Russian oligarchy, is only one renegade candidate to be watched. Others may materialize as the military is pushed further into the corner, or as the appropriate mixture of opportunity and desperation coalesce.

The bottom line: There's a rough road ahead in Russia. The current leadership in Russia is precarious. There have been repeated, abrupt changes within the past 18 months. The development of political and economic stability, in the no-holds-barred arena of competing personal agendas, does not even appear to be the objective of the various players or power factions. It simply looks, under the current circumstances, like "you can't get there from here."

Reform is the mantra being thrown about by entities on all sides, by people and organizations inside and outside Russia. Reform is certainly called for: in the government, in the military, in banking, in the agricultural sector, and virtually any other sector that can be quantified as a sector. But reform is hobbled by forces reaching back as far as the Czars, and as current as Yeltsin's "Family."

Some might conclude that this situation, that is, competing interests and the fight for personal or economic advantage, will spawn opportunities that will need to be snapped up quickly, with no questions asked. But the consideration of "best-case" and "worst-case" scenarios for businesses interested in pursuing opportunities in Russia is daunting.

The best-case scenario is that a sick, old man, surrounded by a corrupt inner power circle, will continue to skillfully juggle power elements around him, thus ensuring a disorderly succession, whenever Yeltsin's death grip on power is loosened. The economy will suffer from continued instability. The average citizen will face deprivations that require greater ingenuity to simply survive. The possible worst-case scenarios, fostered by the current circumstances imposed on the not quite compliant, but resigned populace, include a return to "order" as the result of a military-backed coup d'etat or the rise of a new "democratic communism" forged from communist and smaller factional interests. Corruption, in the new order as in the old days of Communism, would likely be removed from public view, at least stifling some citizen concern over the disparity between the haves and the have-nots.

Under any circumstances, businesses interested in Russia need to keep their eyes wide open, and be prepared to move quickly. Strategies to be considered over the next 12 to 24 months, include:

* Standing firm with current ventures and investments or even downsizing current investments;
* The sequencing of investments (taking into consideration the precise developments in the short-term);
* Participation in appropriately defined joint ventures with Russian entities that can provide on-the-spot insight and some level of protection;
* Participation in business ventures supported by project financing.

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