Five months ago Boris Yeltsin wagered his political survival by ditching his dour and incremental reforming prime minister, Viktor Chernomyrdin. Western governments and foreign investors hailed his appointment of a "dream team" of young doctrinaire liberal reformers with 35-year-old Sergei Kiriyenko as prime minister.

International lending institutions such as the IMF were reassured by the knowledge also that Anatoly Chubais, the main proponent of liberal economic reform for Russia, continued to act as Yeltsin's eminence grise. Russia's dependence on foreign investors and the IMF required that it instil political confidence in its commitment and capacity for market reforms.

The result was the successful negotiation of a massive new $11.2 billion IMF loan in July to bolster the rouble. Yeltsin's wager on a government of economic liberalisers has ended in a triplet of disasters: the IMF loan squandered in a hopeless defence of the rouble, culminating in last week's effective devaluation; the government defaulting on its short-term debt repayments; and a rash of insolvencies in Russia's banking sector. Confidence in Russia's reformers has been shattered, pushing the country towards the cusp of a post-Yeltsin era.

The economic crash has thoroughly discredited Yeltsin and devastated three key constituencies on which his political survival depended: ordinary Russian voters, the seven financial oligarchs that control about half of the economy, and foreign investors. Yeltsin, an inveterate political survivor who has bounced back many times before from the edge of the political abyss, has taken a knockout blow by the effective devaluation of the rouble and the ensuing obliteration of the Russian stock market.

A stable rouble was the one claim to success from his flirtation with liberal economic reform, though it was achieved at the cost of the mass impoverishment of Russian society. Last week's devaluation means that ordinary Russians, who are owed billions of dollars in wage arrears by the government and private-sector employers, have seen their savings halved in value in the space of a week, and now have nothing to hope for after six years of grinding economic reform.

The financial oligarchs that dominate Russia's "crony capitalism" have also been thrown into panic, sensing that their economic empires - built on banks and financial services and fed by political contacts and insider deals - are teetering on the brink of collapse, as the crash has left much of the banking sector insolvent.

Foreign investors who pushed Russian stock values to all-time highs in 1996-97, and whose purchases of Russian debt have kept the government afloat for the last two years, have finally stampeded out of Russian equities into safer havens, while the Russian government has frozen the domestic debt market. Some Western securities firms are heavily exposed and their disastrous engagement with Russia will not be quickly forgotten, nor their retreat readily reversed, a factor that weighs heavily against an early Russian economic recovery.

Yeltsin's response to the crisis has been fully in character. His lack of understanding of economic policy is exceeded only by his erratic political gestures and penchant for scape goats. This partly explains the sudden sacking of the Kiriyenko cabinet and the reappointment of Chernomyrdin as the new acting Prime Minister. The key factor, however, was enormous pressure behind the scenes from an oligarchs' revolt. Fearful that their economic empires could go under, and that economic and political instability could lead to a restoration of a Communist government, the oligarchs have foisted Chernomyrdin on Yeltsin in what amounts to a political coup.

Chernomyrdin, formerly the head of Russia's giant gas monopoly, Gazprom, has lost few of the characteristics and exhibits all of the instincts of a stolid communist-era economic manager. His consensus-building style, and indeed his plodding manner and greyness, will reassure and comfort Russians at all levels, with the exception of young liberal reformers. Institutional relations will improve across the board - with both chambers of parliament (the Duma and Federation Council), regional administrations, and financial and corporate interests.

Chernomyrdin raised the possibility of co-opting Communists into the government during the political conflicts over economic reform late last year - and his compromising stance was a major reason for his removal by Yeltsin in March. We can expect him to now resume the attempt to build a national consensus on reform. Chernomyrdin is a shrewd political tactician who has all the qualities needed to woo parliamentary opposition and secure the passage of urgently needed legislation, especially on the budget and tax reform.

He will dampen the reformist zeal of the government in accordance with his more conservative instincts and popular pressures for security and stability.

Constitutionally, the Russian parliament, the Duma, must approve the President's nominee for prime minister within a week. Chernomyrdin's compromising style is already in evidence, at work soothing Communist opposition by agreeing broad "principles" for a coalition government with the Duma's Communist speaker, Gennady Seleznev, and establishing a conciliation commission between government and parliament on economic reform. He can be sure of detaching, at the very least, the support of the 20 to 30 Communist deputies who eventually backed Kiriyenko's nomination as PM in April, and consequently is almost certain to be approved by the Duma on Monday week.

As an experienced political operator and manager, Chernomyrdin will aim to divide and weaken the Communist opposition by co-opting some of its leading figures into his new cabinet. The price of this broadening of the political base of the government to include some Communists will be a more closed, protectionist and statist economic policy, perhaps including some renationalisation of privatised industries and a foreign policy more hostile to Western interests.

Consequently, a less fraternal relationship with the IMF than that of Kiriyenko and Chubais is in store. The greatest fear for economic stability must be that monetary restraints will slacken as Chernomyrdin may be tempted to indulge in a wave of patronage dispersal, particularly to key regions, to prepare the ground for his presidential bid in 2000.

As a reflection of power-sharing between a weakening President and a strong Prime Minister, Chernomyrdin has wrung two major concessions from Yeltsin: there will be no presidential interference with his cabinet selection, and a public statement from Yeltsin that Chernomyrdin is the best guarantor of continuity and stability and is Yeltsin's preferred successor for the presidency in 2000.

Much now depends on Chernomydin's ability to stabilise the markets by building a political consensus with a working Duma majority. This will be complicated by his political rivals for the presidency, Communist leader Gennady Zyuganov, Moscow Mayor Yury Luzhkov, and Governor of Krasnoyarsk Alexander Lebed, who have no interest in eroding their own prospects in 2000 by making the Chernomyrdin government a success. The electoral timetable offers an ever-decreasing opportunity gap for the Russian government to implement further reform. With Duma elections late next year and a presidential election in summer 2000 it is very unlikely that any of the presidential contenders, the Duma parties or Federation Council senators will entertain any grim economic measures that will negatively affect their electoral chances.

The intractable problem for Chernomyrdin, or any Russian leader, is how to balance the demands of the Russian people for economic stability, the pressures and lobbying of Russia's corporate interests (whose funding and media will largely shape the electoral outcomes), and the pressures from Western governments, financiers and investors for reforms and a more transparent market system.

Dr James Hughes is Senior Lecturer in Russian Politics at the London School of Economics and Political Science