(FORTUNE Magazine) – LIGHTWEIGHT,'' was the way a senior Bush Administration official described him last year. ''Demagogue,'' charged another. Throughout much of the West's long love affair with Mikhail Gorbachev, U.S. officials consistently dismissed his main political rival, Boris Yeltsin. They considered him a nuisance, a sideshow, and little more than a frustrated troublemaker out to rain on Gorbachev's parade. But while Gorbachev's standing among Soviet citizens plunged -- dropping to an all-time low approval rating of 18% -- Yeltsin's consistently climbed. Now the U.S.S.R.'s most popular politician has precipitated a crisis by demanding that Gorbachev quit. He has also countered Gorbachev's proposal to reorganize the Soviet Union with one of his own that would form a much less centralized federation. Whatever the outcome of a crucial mid-March national referendum on that question, Yeltsin's appeal, coinciding as it has with Gorbachev's increasingly hard line, raises difficult questions for Western investors, managers, and government officials. As a champion of the sovereignty of the 147-million-citizen Russian Republic he heads, Yeltsin has challenged important business deals, such as a $5 billion diamond contract with a subsidiary of De Beers, by insisting that Moscow cannot export such resources without a republic's permission. Politically his increasingly / powerful attacks on Gorbachev contribute to instability that is moving the country closer to civil war. What's clear is that despite the West's longstanding skepticism, Yeltsin is a man to be reckoned with. He may be the only person capable of preserving the Soviet Union without having to resort to force. And he may well be the best champion of the values the West has come to know as perestroika. The remnants of the democratic movement, plus strands of the political center, are beginning to gather around Yeltsin as the leader most likely to complete the revolution Gorbachev started. Even conservative establishment figures like Georgi Arbatov, a foreign-policy adviser to both Brezhnev and Gorbachev, and Tatiana Zaslavskaya, a sociologist who was once a senior member of Gorbachev's inner circle, have signed on as Yeltsin advisers. With Yeltsin's call for Gorbachev to step down, their battle has entered its decisive phase. The West has assumed that preservation of the Soviet Union as a geographical entity is in its interests, though that assumption is based mainly on the fact that Western leaders have become accustomed to dealing with a single strong leader in Moscow. Yeltsin and the reformers around him would like to change that notion. They argue that Western financial aid is merely propping up a discredited empire that ought to be allowed to fall. Says Mikhail Poltoranin, Minister of the Press and Mass Media in the Russian government: ''If the West goes on supporting Gorbachev, it is the best guarantee that there will be a civil war.'' The party-controlled media have turned on Yeltsin, calling on the Russian parliament to remove him as leader. The national Parliament, controlled by Communist conservatives, passed a resolution condemning Yeltsin's demand for Gorbachev's resignation as unconstitutional. That conceivably could allow Gorbachev to arrest Yeltsin for breaking constitutional law. The people seem to feel otherwise. On Sunday, March 10, more than 200,000 filled Moscow's Manezh Square to back Yeltsin. Said one demonstrator, a 52- year-old taxi driver: ''Gorbachev should go. We're sick of him. He wants the Communist Party to be No. 1 again. They ruined the country once. Why should we let them do it again?'' Is Boris Yeltsin, to use Margaret Thatcher's famous phrase about Gorbachev, someone ''the West can do business with?'' Or, now that Gorbachev has cozied up to Communist hard-liners, is Yeltsin someone the West should do business with? YELTSIN'S SECRET is not his personality. Many who know him find him undisciplined and obnoxious. He has been known to slam back generous helpings of American whiskey, a habit that set tongues wagging when he visited the U.S. His secret is that, like Ronald Reagan, he combines a common touch with shrewd political instincts. Notes Vitali Korotich, editor of the popular weekly Ogonyok: ''He is a simple man. But he has brilliant stuff.'' While Gorbachev has played statesman on the world stage, Yeltsin has shrewdly positioned himself as defender of ordinary Soviet citizens. He has shown an uncanny ability to adapt to the realities of democracy, partly by aggressively attacking the perks and privileges Communist Party members still enjoy. In a dramatic move last summer, he resigned from the Communist Party, saying that as elected leader of the Russian Federation, he could not promote the interests of one political party over another. Gorbachev, the initiator of the reform process, chose to remain leader of the Communists, leaving the distinct impression that he either feared quitting the discredited party or, worse, that despite all the democratic principles perestroika involved, he really was a Communist after all. Yeltsin showed signs of impetuous behavior even as a boy. The son of peasants, he was born in 1931 (as was Gorbachev) in Butko, a quiet hamlet in the Ural Mountains. In the 1940s, at the height of the Nazi invasion, he and a friend tried to dismantle a live hand grenade, which young Boris had stolen from a local weapons depot. In the resulting explosion he lost two fingers on his left hand. After graduating in engineering from Urals Polytechnical Institute in 1955, he began his career as a small-town construction supervisor. His talents led him into party work, and in 1968 he became a full-time party official in Sverdlovsk, an industrial center not far from his hometown. In 1976, Brezhnev promoted Yeltsin to the powerful position of First Party Secretary in Sverdlovsk. He handled the job ably for nine years, and it was there that he honed his human touch. He often rode to work on public transportation instead of in his chauffeur-driven black Volga. At harvest time he would turn up on farms to help dig up potatoes. Weeks after Gorbachev came to power in 1985, he appointed Yeltsin head of Moscow's party organization, effectively making him mayor of the city of nine million. Under Brezhnev, Moscow had become a center of party corruption, and Yeltsin cleaned house with gusto. In less than two years he replaced most of the local party secretaries -- the biggest shakeup since Stalin's purges in the 1930s, though nobody got shot. In retrospect, a falling-out was inevitable. Yegor Ligachev, who was Gorbachev's secretary of ideology, began to attack Yeltsin at Politburo meetings for his take-no-prisoners approach to reform. Yeltsin grew annoyed that Gorbachev, whom he regarded as a friend, refused to defend him from the ire of the conservatives. The situation exploded at a 1987 party plenum when Yeltsin went public with his complaints about Gorbachev. In an unprecedented attack, he criticized the Soviet leader for pursuing reform too slowly. Gorbachev angrily countered that Yeltsin had become too full of himself: ''Are you not satisfied that all Moscow revolves around you?'' Once the dust had cleared, Yeltsin was out of the Politburo into the minor post of Deputy Minister of Construction. When elections were held in 1989, he ran as Moscow's candidate at large for the Congress of People's Deputies and won 89% of the vote. Later he was elected chairman of the Russian parliament. The message was clear: The party could oust him, but the people would put him back. Having squabbled with Gorbachev over the pace and timing of reform, Yeltsin quickly began using his new position to promote reforms that the Soviet leader had rejected.The legal basis for his actions was a measure passed by the Russian parliament last June that placed Russian law juridically higher than Soviet law. Last December, in a key step toward economic and political reform, Russia legalized private land holdings for the first time since the 1917 revolution. Gorbachev rejected the decision, but since there is no Soviet Supreme Court to resolve such disputes, the clash has degenerated into a ''war of laws.'' Yeltsin says there is private property. Gorbachev says there isn't. Caught in the middle are would-be owners of farms, shops, and factories who aren't sure whether the leases they get from local authorities in Russia will hold up. More recently Gorbachev and Yeltsin have clashed over competing visions of how the Soviet Union ought to be reorganized. Over the past year, most of the Soviet Union's 14 other republics followed Russia's move toward sovereignty. To try to get them back, Gorbachev proposed a new Union Treaty in December that would reunite the republics into a federation with a strong central government. Six of the 15 republics have since announced they would not sign Gorbachev's version of the treaty. Another seven -- including the three Baltic states -- would not even attend emergency negotiations called to hammer out a more acceptable draft, which was published early in March. So far only two, Tadzhikistan and Turkmenia, have said they would accept Gorbachev's draft. Both are in central Asia, where perestroika has barely begun. Yeltsin countered that the Soviet Union should become a loose confederation of sovereign states something like the countries in the European Community. The central government would handle defense, foreign policy, telecommunications, and civil aviation. The republics would control all other functions within their borders. The idea is immensely popular among many of the republics, which have grown weary of fighting Moscow for the right to pursue economic and political reform at their own pace. Says a well-informed Western diplomat: ''The issue isn't, which proposal is better. The issue is, which stands more chance of being approved? And that one is Yeltsin's version.'' Yeltsin has put together a group of the leaders of the five most populous republics -- Russia, the Ukraine, Byelorussia, Kazakhstan, and Uzbekistan -- to work out details of a confederation.

TO RAM THROUGH his own version of a new union, Gorbachev may have little choice but to use force -- an option he seems willing to consider. Says Ogonyok editor Korotich: ''It's clear that the end result of this process is going to be some kind of confederation. The question is, what are we going to have to go through before people accept it?'' Adds a Western diplomat: ''Yeltsin is the only one who has looked at the declarations of sovereignty of all the republics and begun seeking common ground in them. He is light- years ahead of Gorbachev in this.'' After Soviet tanks rolled over 15 unarmed youths in Lithuania last January, Gorbachev blamed the demonstrators. Yeltsin took their side -- with a vengeance. He flew to Estonia, met with leaders of the Baltic republics, and signed a declaration supporting the republics' claim to independence. He also implored Soviet soldiers not to shoot citizens even if they were ordered to do so. The possible disintegration of the Soviet Union into as many as 15 separate countries has already posed challenges for Western investors. But decentralization could also create new opportunities. Lithuanians speak | bravely of turning their country into a European Hong Kong, where Western technology could be matched with raw materials from Russia and cheap labor in Lithuania. ''Look at the map,'' says President Vytautas Landsbergis. ''We are closer to Berlin than to Moscow.'' Most important, Yeltsin's proposal for a confederation seems to be the only version that would allow the Soviet Union to remain together without the use of tanks. Seated in his barricaded parliament office, Landsbergis says that even the radical Lithuanian secessionists would consider being part of an economic union along the lines Yeltsin has suggested. But he adds cautiously, ''We would have to see what kind of union they were talking about.'' Communist hard-liners are fighting Yeltsin with a good old-fashioned KGB smear campaign. When a member of Yeltsin's government, Gennadi Filshin, was implicated in a scandal involving questionable import deals, the party- controlled media were suddenly full of sensational hints of scandal in the Russian government. Having thrown down the gauntlet, Yeltsin knows that he will end up either a hero or a martyr. Whatever his fate, he has already done enough to be remembered as one of the men who did the most to advance the goals of democratization. Perhaps even more than Mikhail Gorbachev.