By Catherine Belton
Staff Writer
BELOKURIKHA, Altai Region -- More than 200 people gathered in the foothills of the Altai Mountains last weekend for a Russian version of the Davos economic forum as state pressure grows on its outsider organizers, opposition politician Vladimir Ryzhkov and a local branch of the Open Russia Foundation set up by Mikhail Khodorkovsky.
As a handful of diehard liberal economists such as Andrei Illarionov, the former economic adviser to President Vladimir Putin, met to discuss economic strategy with Altai businessmen and politicians, officials from the region's administration boycotted the annual gathering for the first time since its inception in 2001. Many usual participants from Moscow made their excuses and did not turn up.
For the core group of liberal policymakers and business people who remained, the forum was a chance to spread the word on the growing might of the new state "corporation" that is taking over swathes of the economy and political life and slowing down economic growth.
For one of the two state officials who did turn up, Mikhail Dmitriyev, the head of the government's Center for Strategic Research, it was a place to present a new study on how the growing lack of political freedom appeared to be putting the brakes on combatting corruption, an issue, he said, the government had had little interest in hearing about these days.
The conference came as the state is increasingly moving into new sectors of the economy, taking over companies in oil, automaking and aviation, essentially reversing a number of the controversial privatizations of the 1990s. At the same time, there has been a growing clampdown on political opposition, most vividly illustrated by the jailing of Khodorkovsky, the former Yukos chief executive. Gubernatorial elections have been abolished, and the State Duma elected in 2007 will have no independent deputies, such as Ryzhkov, who has represented his native Altai region since 1993. At the end of last year, Illarionov resigned his post as presidential adviser saying the Kremlin had gone too far.
The number of no-shows at the Altai meeting, Illarionov said, was a clear example of the Kremlin's "them and ours" policy. The policy -- which he has dubbed "nashism" -- has made many wary of criticizing the authorities for fear of losing business or position and is stifling real debate and blocking opposition.
"It seems to me that the regional authorities were frightened of coming here," Ryzhkov said. "I am in opposition to what the authorities are doing, and Illarionov is too."
Ryzhkov, who as one of the few Duma deputies outside the Kremlin's influence has come under fire himself, said it seemed that United Russia had advised its members not to attend. "They all ignored the invitations," he said. "But this shows a great deal. It shows that the authorities are isolated from new ideas. They don't want to hear criticism or analysis. This is a very worrying sign."
The absentees missed out on discussions with leading regional economists on how to best stoke Altai's flagging economy as well as on the release of Dmitriyev's study on ways to combat corruption, which according to Transparency International leapt to a level higher than in 80 percent of all countries last year and is acting as a major brake on economic growth.
The spike in corruption, Dmitriyev told the conference, coincided with the first fall in the level of Russia's political freedom recorded by Freedom House in 2004. "The best way to combat corruption is through democratic institutions. As soon as they were weakened we got a very sharp result," he said.
Without lowering state corruption, it is not clear if the country's economy is going to grow, he said. "This is a very important question, especially at a time when the government is trying to expand the role of the state," Dmitriyev said in an interview on the sidelines of the conference. "But there is no one in the administration actively fighting corruption. The administration has pushed it back to the bottom of the list."
Still bruised from a time in office in which his railing against the expansion of the state into the economy was swept aside and ignored, Illarionov presented a withering attack on the growing might of the state and said that without political freedom there was no chance for economic growth in Russia.
Using $12,000 for GDP per capita by purchasing power parity as an approximate base line between mid- and high-income countries, he said there were no examples in the world where a country with few political freedoms had managed to become rich.
"The lack of any examples of a rich country lacking political freedoms leads to very serious doubts as to whether any unfree country can cross this line," Illarionov said at the conference Sunday. Russia currently has a GDP per capita of about $9,000.
Nationalizing the oil industry is also not the best way forward to riches, he said, pointing out that since Saudi Arabia took over its energy sector in the mid-1970s, its GDP per capita has dropped from $17,000 to $11,000 now.
Saudi and Venezuelan-style nationalization of resources came under fire too in a presentation Illarionov made on Saturday. He said the state's acquisition of Yukos' main production unit, Yuganskneftegaz, in December 2004 in a forced auction over $28 billion in back taxes was already having a huge impact on economic growth rates overall and on growth rates in the oil sector. While average growth in the oil sector hit a record 12 percent in June 2003, it had fallen to 0.9 percent in August 2005, he said.
As the state moves into other sectors of the economy as well, growth is also being slowed by the government's new "industrial policy" in which German Gref's Economic Development and Trade Ministry is seeking to diversify the economy with its own administrative measures such major tax hikes on the oil sector, Illarionov said.
"Now the main policy of the government is redistribution of monopoly rents and not the creation of a good business climate," he said.
Economic growth at the moment is driven only by high oil prices, he said. If prices had stayed at 1999 levels, GDP would have fallen 10 percent this year, he said.
The most worrying sign for the economy, however, he said, was the sharp drop in political freedom. Last year, Freedom House for the first time rated Russia as an "unfree country" in its rating of 25 transition economies, moving Russia from ninth place to 22nd.
"Any country that does not have free competition of ideas is doomed," he said. "Other countries that followed such policies over decades ended up with withered economies."
Ryzhkov said the unwillingness of the Altai administration to take part in this year's conference was a telling sign of the government's increasingly closed-mindedness. "This shows that the ruling elite does not want free discussion," he said in closing remarks Sunday. "There has been a change of leadership, and the new governor has been appointed from Moscow. Why discuss anything when it is the boss in Moscow who is deciding all policy?"
Calls to restore political freedom and combat corruption were likely to fall on deaf ears, Ryzhkov said.
Dmitriyev said his center had conducted its study on corruption on its own initiative. "The last time we were asked for an analysis on anti-corruption measures was 1 1/2 years ago when the program of administrative reforms was being prepared," he said in the interview.
This time, he said, the center had conducted the analysis as part of a major new study aimed at understanding the global problems Russia will face over the next 10 years.
The corruption analysis compared Russia with other transition economies such as Poland and China. It found that all transition economies experienced a major boom in corruption in the early 1990s when the market was first freed, but it was later reined in by the checks and balances instilled by the strengthening of democratic institutions such as a free press and an independent judiciary.
While in Poland corruption dropped to levels below other developed European economies, in Russia it dropped and then rose again sharply last year, he said.
Chinese officials brought down corruption through stiff administrative measures. Last year, however, corruption in China stayed at the same level as before. "This could be because you can't have an effective anti-corruption strategy without democratic institutions," Dmitriyev said. "Administrative measures alone have not allowed China to reduce corruption to levels in Central and East European countries."
The sharp rise in Russia last year, he said, looked to be the result of the reduction in democratic freedoms, while administrative measures -- such as the administrative reform he helped draft -- had had little impact.
"Now that it's at the stage of implementation, it does not look like a reform but like something that will maintain the status quo," he told the conference.
Times have changed greatly from when he first came to Altai in early 2000. Soon after his trip, he was offered a position helping the future economic development and trade minister, Gref, draft a strategic plan for liberal reform ahead of Putin's election in March 2000. Since then, after a promising Putin first term, most of this plan appears to have been shelved or watered down.
The other state official attending, Andrei Klepach, a director of a department in Gref's ministry, argued against Illarionov's criticism of growing tendencies toward nationalization. He said the only acquisitions by the state had been the purchase of Yugansk and state-controlled Gazprom's buy of Sibneft last September. "This does not mean the state has abandoned the market model," Klepach said. "It was a political decision."
He said the state's recent takeover of management at carmaker AvtoVAZ did not involve any handover of ownership. "The state has been brought in as a crisis manager," he said. "There is no other way to guard the plant against bankruptcy."
Illarionov fired back by saying that the state was now taking over control of financial flows without bothering to gain ownership rights first. "The state is now using the same methods as Boris Abramovich [Berezovsky]," he said.
Putin's decree last week on creating a new state aviation holding company majority-owned by the government effectively diluted private ownership of aviation firms where state ownership was less than 50 percent. "The state is again showing that it has no respect for property rights," the president's former adviser said.
The state's $24 billion spending spree on Yugansk and Sibneft, meanwhile, had come directly out of the pockets of the people, Illarionov said. "As a result, Russian society is going to be poorer. All they are being compensated with is $5 billion in national projects," he said.
Even though Ryzhkov vowed to continue holding the forum in Altai -- which he first conceived as Russia's answer to the World Economic Forum in Davos, Switzerland, where he has been a participant -- it is not clear what the future is for independent conferences like this, especially those organized by funds affiliated with Khodorkovsky's Open Russia.
Open Russia has opened so-called "public policy schools" in 52 regions, and the Altai Krai Fund for Social Support and Civil Initiatives that helped organize the Belokurikha meeting is one of them. Other opposition politicians such as Mikhail Kasyanov and Garry Kasparov have spoken at other regional seminars held by the public policy schools. Even though Open Russia has spun off the public policy schools as independent entities, they have still come under pressure from the tax authorities.
Khodorkovsky is due to step down as Open Russia's chairman in April, said Ryzhkov, who is a member of the organization's management board.
The Belokurikha conference was also co-organized by a German think tank, the Friedrich Naumann Foundation. Ryzhkov said suspicion of foreign NGOs, especially following the recent scandal involving alleged British spies, also could have spooked regional officials and influenced their decision to stay away.
