In the early and mid-1990s, Russian-Baltic relations were based on mutual exploitation of disputes, while Russia's Baltic policy was aimed at halting the encroachment of NATO towards the region. From early 1997, there emerged the rudiments of a new Russian strategy of counter-engagement - a combination of hard and soft security initiatives seeking to balance Western advances in the region. Following the August 1998 systemic shock, a paradigm shift in Russia's Baltic policy has begun to develop. The growing role of regional political elites and subfederal economic structures may lead to a widening of policy concerns and greater cooperation with Baltic neighbours. If the centre can maintain its ability to manage the process of decentralization within an ever-weakening Federation, Russia'. Baltic policy will continue to evolve in a more diverse, multi-layered and complex manner. If, however, the federal centre and the regions continue to weaken, both Russia and its Baltic policy will lose coherence.