Author`s name Michael Simpson

Absolute Centrism, New Line of Russia's Economy

Presidential adviser for economy sends the right and the left economic ideas to the dustbin of history together with their authors
This year, Russia has fixed wonderful economic showings. The surplus of the 2004 budget is considerable, the stabilization fund has been formed, the inflation is unlikely to exceed 12 per cent, the growth makes up over 6 per cent, Standard & Poor's has conferred an investment rating to Russia. What is more, oil prices are still really high; RAO UES of Russia has started the takeover of power systems of the former Soviet republics in the framework of making Anatoly Chubais's liberal empire. Foreign experts diligently praise Russia for its considered financial policy. In a word, the RF Government can be proud of the work done. However, the situation is not that perfect as it seems to be, Presidential Advisor for Economy Andrey Illarionov says.

The advisor for economy states that economic success of the country is not at all the desert of the government - the prime minister, the minister of finance, the minister for economic development and trade or chief executive officer of RAO UES of Russia. Russia's economic growth equivalent to 4 per cent GDP in 2003 was guaranteed only thanks to the favorable foreign economic situation. In other words, the high oil prices have secured over half of Russia's economic growth. The last year's growth made up 4.3 per cent. Andrey Illarionov thinks that with the 2002 components influencing the economic growth the GDP growth would have made up 4 per cent in 2003. However, thanks to oil prices the GDP growth is expected at the rate of 6.5 per cent and even higher.

The presidential advisor for economy says that during the year the GDP growth has already exceeded the official forecasts twice. The first official forecast made up 3.5 per cent and the second one - 4.5 per cent. Mr. Illarionov says, this means that Russian economy may grow faster than predicted. Is it so in fact?

In fact, Andrey Illarionov insists that development of Russia's economy is unsteady when an upsurge may entail stagnation sometimes lasting for several months or even end in setback in production. This can hardly be called a success of the Russian government.

The public disputes on economic issues between President Vladimir Putin and Prime Minister Mikhail Kasyanov come up in connection with the above-mentioned statement. Vladimir Putin said the plans of the government were not that ambitious. Mikhail Kasyanov replied that it was good that economic development of the country proceeded without upheavals. Later, in his State of the Nation address Vladimir Putin explained what he understood to be good economic development. Main objective of the country as voiced in the address is to be doubling of GDP within ten years.

At the same very period, Vladimir Putin reproached Mikhail Kasyanov that the idea of the stabilization fund creation was not fixed in the plans of the RF Government. Meanwhile, Minister of Finance Alexey Kudrin has been seeking creation of the fund for a very long period. The fund is a wonderful instrument to curtail inflation. Indeed, the RF Central Bank has to print more additional rubles to buy up dollars that are unnecessary for the economy; the Economy Ministry may keep the spare rubles in the stabilization fund to have the inflation controlled. However, Andrey Illarionov is not sure that the fund will be able to control inflation and offers to update the law on stabilization fund.

The presidential advisor for economy thinks that instead of spending money from the stabilization fund to cover the budgetary deficit when oil prices drop, it is better to use the money from the fund to liquidate the public debt. Andrey Illarionov says: "There is no point in accumulating large sums of money on accounts of the stabilization fund and to draw the interest while the interest Russia pays on the public debt is 7-12 per cent." Nevertheless, he admits that creation of the stabilization fund is the event of the year.

Everybody seems to be already tired of Andrey Illarionov's criticism in the address of the chief executive of RAO UES of Russia. The presidential advisor for economy thinks that Chubais's idea of a liberal empire creation has not yet attracted much attention of politicians, but its absurdity is quite obvious. Majority interprets the appeal to create a liberal empire voiced by Anatoly Chubais as the necessity to revive the Soviet Union, at least the economic aspect of the USSR. To all appearances, reviving of the Soviet Union is not one of the nearest targets of Andrey Illarionov.

The recent achievement of Anatoly Chubais - construction of the Bureiskaya hydroelectric power plant - is another swindle of his, the presidential advisor for economy says. He believes that nobody in the Far East needs the power produced by the hydroelectric power plant, even the Chinese. The flooded area of the power plant has covered 80 kilometers of railways. Anatoly Chubais wants that the government must construct by-pass ways out of its own pocket.

Andrey Illarionov also criticized left-wing economists who have suggested a provocative idea of royalty re-distribution to the RF Ministry for Economic Development. The ministry immediately started calculating the limit of the royalty size and informed the Russian population of the calculated result. The situation has turned out to be rather funny. According to Andrey Illarionov, "re-distribution of rent which is incorrectly called royalty" is something different from "the anti-idea of the year". "Attempts to increase taxation of effective branches and to withdraw finance from these branches in favor of other branches are the most ridiculous and harmful thing," the presidential advisor for economy believes. He adds: "This is sad that the scientific substantiation of the royalty idea has come from the side that is traditionally called the ultra right side. This means that we have no right-wing forces at all; this is just the name that disagrees with the economic ideas they suggest."

In the words of Andrey Illarionov, realization of the royalty idea will reduce the effectiveness of Russia's economy. What is more, the idea of property re-distribution popularized by left-wing economists and politicians is also dangerous for the economy. 

What does Andrey Illarionov mean in fact? He probably wants to say that members of the government have not done anything useful staying on their posts. And it would be nice to substitute them with others who are no so much preoccupied with liberal or left populist ideas. He believes that under the guidance of the president and the presidential advisor for economy these new people will set themselves ambitious problems and will be working on them. He states that the president has already created all preconditions for this effective work.

"The idea of GDP doubling voiced by the president has produced much discussion that is still burning; it has considerably extended the horizons of economic predictions," Andrey Illarionov says. "In the 1990s, economic forecasts were done for 3-6 months at most while they are being currently done for 4 years. Prolongation of the period of economic forecasts raises the effectiveness of action that may be done within this very period."
From this standpoint, Andrey Illarionov thinks the Yukos case is the "anti-event of the year" that has changed the rules of play between the authority and the business and that should not be regretted. Indeed, the Yukos case has caused much uncertainty and new rules of play are currently being formed. Is it for sure that the new rules of play will be better than those that we still have today?

The uncertainty of statements by Andrey Illarionov sometimes suggests different thoughts and may be even alarming.

Photo: Presidential Advisor for Economy Andrey Illarionov

Subscribe to Pravda.Ru Telegram channel, Facebook, Twitter, YouTube, RSS!