Putin aide says growth threatened by state

By Stefan Wagstyl and Arkady Ostrovsky in Moscow

President Vladimir Putin's economic adviser has warned that Russia is jeopardising its economic growth by drifting away from liberal market reforms and moving towards increased state intervention.

In an interview with the Financial Times, Andrei Illarionov said the effects of high oil prices were masking the damage done by poor economic policy over the past three years. He also criticised the government for allowing the controversy surrounding Yukos, the oil company, to escalate, and warned of “dire consequences” for the company. “The quality of economic policy has got worse,” said Mr Illarionov. “In 1999 and 2000 economic policy made a positive contribution to economic growth. The best economic policy was pursued in 1999. Since 2001, it has made a negative contribution to GDP growth.” Mr Illarionov calculated that last year higher oil prices contributed 9.2 per cent to gross domestic product. But GDP increased only 7.3 per cent, so domestic factors cut growth by 1.9 percentage points.
“If we'd had stable external prices . . . we would probably have had a fall in economic growth,” said Mr Illarionov.
He has a reputation for challenging Russia's economic policymakers in public, but this is the first time the adviser has launched such a comprehensive criticism of the government. His attack comes at a time when other officials have become increasingly careful of voicing dissident views in the face of authoritarianism in the Kremlin.
His views contrast sharply with those of Mikhail Fradkov, the conservative prime minister, who has publicly backed greater state economic intervention. Mr Illarionov said officials were blocking liberal reforms because it was easier to manage the status quo than to risk making mistakes in pushing for change. “The rate of return for a government bureaucrat in redistributing rents [natural resources revenues] is incomparably higher than in trying to push responsible economic policy and liberal reform,” said Mr Illarionov.
He also criticised the authorities for allowing the Yukos affair to escalate, with the oil company facing possible bankruptcy and its founder Mikhail Khodorkovsky in jail on fraud charges.
“The Yukos affair has its own logic. One can hardly imagine such a political force in the world that can stop this process now.”
Executives were now nervous that they might be next to attract the authorities' attention.
“Since last October [when Mr Khodorkovsky was arrested] it has got really serious. It is one of the most important issues that is being discussed and even after a discussion you can see in their eyes what they are thinking,” Mr Illarionov said.

(From Financial Times)