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12/29/2004

Bearish on the Russian economy

Illarionov

The overheated Russian economy may be headed for the deep freeze, according to Andrei Illarionov, an economic advisor to President Vladimir Putin.

The St. Petersburg Times
reports:

Russia's current economic policy cannot lead to the planned doubling of its GDP within 10 years because of the state's "shady" intervention in business, Andrei Illarionov, presidential economic adviser, said Tuesday at a news conference.

Illarionov named the recent auction of Yuganskneftgaz as the dodgiest and harmful act of the year to the image of Russian business, Interfax reported.

"The sale of Yuganskneftegaz to a mystical, and now not so mystical, company named Baikal Finance Group has won this year's 'shady deal of the year award'," Illarionov said.

"This game used to be characteristic of con artists. Now such deals are being implemented between state-owned companies."

The political adviser was adamant that Russia's economic policy has suffered, and should aim to be balanced, consistent and liberal. Only then can the country hope to double the GDP, he said.

"Doubling it is out of the question while the government pursues an interventionist policy," Illarionov said.

Russia's current economic stagnation was the chief surprise of the year, Interfax reported Illarionov as saying.

In 2004 Russian oil was exported at an average price of $29 per barrel compared to $23.7 per barrel in 2003, Illarionov said. Consequently, the oil sales situation brought in $54.3 billion in 10 months of 2004, compared to $32.1 billion in the whole of 2003.

"Against this background, the growth of nearly all macroeconomic indexes has slowed," Illarionov said.

Meanwhile, the Associated Press reports that the jailed head of the Yukos-Yuganskneftegaz empire has also blasted the Putin government:

"Using selective justice, introducing new legal norms and applying them retroactively," the state has undermined trust in the legal system, said [Mikhail] Khodorkovsky, who is charged with fraud and tax evasion.

"Such methods damage the nation's reputation and hurt the economy, but those who initiated that don't care."

Putin has cast the 18-month crackdown on Khodorkovsky … as an effort to fight corruption and shady bookkeeping. But most see it as a vendetta for Khodorkovsky's perceived political ambitions.

I suspect that Illarionov and Khodorkovsky are onto something here. But if I were them, I'd be watching my diet very carefully—especially those creamed soups.

UPDATE (01-04-05): Remarkably, Mr. Illarionov has just been demoted by Mr. Putin. I'm shocked, shocked.

Posted by Rodger on December 29, 2004 at 09:20 AM | Permalink

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