(FORTUNE Magazine) – If Russian presidential elections were held today, Moscow Mayor Yuri Luzhkov would be a serious contender. A short, squat pug of a man, the 62-year-old Luzhkov has lately been selling himself as the Tony Blair of Russia--and trying to reassure foreign investors that Moscow won't default on its debt. "We think New Labor is akin to what we do in Moscow," says Luzhkov. "We distribute the fruits of capitalism in a socialist, democratic sharing."

Well, maybe. But at first glance, Luzhkov's Moscow has more in common with the machine politics of Chicago under legendary Mayor Richard Daley. As head of Russia's biggest, richest city, Luzhkov managed to exempt Moscow from Russia's 1992 privatization laws, giving the city huge clout as the owner of all federal property in its territory. While the rest of Russia got big-bang privatization, which made millionaires of a small group of insiders, Moscow became the shareholder or partner in hundreds of businesses ranging from fast food to carmaking. Allegations of bribes and kickbacks swirl around these businesses, but the mayor himself denies corruption charges.

Luzhkov has made Moscow work. New roads have been built and paved, relieving congestion in the city. Public buildings gleam. Most years the budget (at least the part of it that the administration reveals) is balanced. Services such as electricity and water are maintained. Crime is down 20% this year. No surprise that 80% of Russia's foreign direct investment goes to Moscow, which last year got $8 billion, double the figure for 1996. "He's clearly done a good job as mayor of Moscow," says Dan McGovern, Merrill Lynch's emerging-markets debt analyst in London. "Whether he can do it on a national level is an open question."

As part of his campaign, Luzhkov is calling for his version of supply-side economics. He advocates a cut in corporate taxes and realignment of tariffs. "It is excessive tax burden that killed companies," he says. "Public revenue won't fall. It means more people will be producing." In the city, he's called for a limit of 15% on borrowings of the city budget. One of the Russian government's biggest mistakes, says Luzhkov, was issuing ruble debt, called GKOs, with huge yields of up to 200% when ordinary Russians were getting just 3% on their savings. "They were nothing but pyramids," declares Luzhkov.

But however much Luzhkov tries to keep Moscow away from Russia, the city has not been able to escape the country's crisis. Moscow's debt has been downgraded along with the country's. The city has $500 million outstanding in Eurobonds due May 31, 2000. In late October, those bonds were trading at 22 cents to 25 cents on the dollar.

--Janet Guyon