Andrenaline shock

(Photo: Nikolay Galkin )

When asked to share their impressions about the professional qualities and ideas of Presidential Adviser on Economics Andrei Illarionov, almost all the economists surveyed unanimously refused. Moreover, surprisingly, both his ideological opponents and colleagues professing similar views. It is unlikely that this is just a matter of the high position to which Vladimir Putin appointed the young economist to the envy of many. Rather, it is in the harshness of his character, for which he is disliked: the dangerous ability to speak the truth face to face, the inability to make compromises. Thanks to these qualities, Illarionov with enviable regularity spoiled relations with everyone - from communist economists to liberal reformers, who at one time did not like criticism of the GKO pyramid, the currency corridor and predictions of impending devaluation, and today do not like the ideas that Russia should not rely too much on Western investments and loans. Therefore, Illarionov is readily criticized by his ideological allies, calling the liberalism he professes populist and one-dimensional.

Walking into power
Thirty-nine-year-old Andrei Illarionov is from St. Petersburg and grew up in a family of teachers. In 1983 he graduated from the Faculty of Economics of Leningrad State University (LSU) with a degree in Economist, Teacher of Political Economy. In 1987, he graduated from graduate school at Leningrad State University in the Department of Economics of Modern Capitalism, Candidate of Economic Sciences. Until 1990, he worked as an assistant at the Department of International Economic Relations of Leningrad State University, and for the next two years as a senior researcher and head of the sector of the laboratory of regional economic problems of the St. Petersburg Institute of Finance and Economics (the head of the laboratory was Sergei Vasiliev).

With the beginning of Gaidar's reforms, Sergei Vasiliev, appointed director of the Government's Working Center for Economic Reforms (RTsER), made Illarionov his first deputy. Together with his boss, he participated in the development of the government program approved in the summer of 1993.

With the light hand of the then Minister of Finance Boris Fedorov, immediately after the referendum on confidence in the president, on April 26, 1993, Illarionov was appointed advisor to Prime Minister Chernomyrdin, head of the analysis and planning group under the chairman of the government. Together with Fedorov, Illarionov sharply condemned the banknote exchange operation on July 26, 1993, and after a difficult conversation with the prime minister, he was hospitalized for more than a month. After this, Chernomyrdin did not give any tasks to the head of the planning group. Over the next six months, Illarionov met with the prime minister only three times and each time he initiated the meetings.

According to Illarionov, one of the main reasons for the defeat of the Democrats in the elections on December 12, 1993 was inflation, for which Illarionov blamed the then head of the Central Bank and the prime minister. He advised the prime minister to dismiss the chairman of the Central Bank, Viktor Gerashchenko. Considering that after Gaidar’s departure the government “turned to full-scale bureaucratic restoration, to outright massive lobbying,” Illarionov resigned, accusing Chernomyrdin of an “economic revolution.” In response to this, on February 9, 1994, he was fired “for violation of labor discipline”: he skipped three days, giving lectures in Great Britain without the Prime Minister’s knowledge. Since then, until his appointment as economic adviser to the president on April 12 of this year, Andrei Illarionov was engaged in pure theory - he headed the Institute of Economic Analysis. At the same time, the research results, sometimes sensational, allowed him to periodically excite public opinion with sharp criticism of the economic policy pursued by the authorities.


Andrei Illarionov gets acquainted with the Chilean pension reform, which is described by the former Minister of Labor of Chile, Jose Piñera, who visited the Russian presidential administration at the end of April. (Photo: Dmitry Plenkin )

Cassandra
Perhaps another reason for the persistent hostility of economists lies in the fact that the forecasts of the “shallow” (as some colleagues consider him) Illarionov often come true. “The currency corridor is generally flawed,” he argued in 1995, “there is a policy of a floating ruble and there is a fixed one. The fact that the boundaries of the corridor have been moved, from my point of view, is a blow to financial stabilization... because it provides guidance for further devaluation of the national currency..."

In January 1996, he questioned government plans to cover the budget deficit through revenues received from non-inflationary sources - for example, the government bond market. The increase in revenues from the sale of government securities from 1.6 to 2.6% of GDP, recorded in the budget, seemed unrealistic to Illarionov without the admission of a large number of Western investors to the market. However, such a prospect, in his opinion, was fraught with increased instability of the government securities market: a foreign investor is extremely sensitive to any fluctuations in the political situation. Do we need to remind you how Western investors fled the GKO market in 1998?

In June 1998, Illarionov gave a scathing assessment of plans to overcome the financial crisis through a 15 billion IMF loan. In his opinion, providing such a loan would be a gamble on the part of the IMF, and the government’s anti-crisis program showed that its authors had neither an adequate understanding of the severity of the situation nor the necessary plans to overcome the crisis.

Illarionov considered the devaluation of the ruble inevitable and described his version of a program for overcoming the crisis: a deficit-free budget, a legislative ban on borrowing - both internal on the GKO market and external (Eurobonds, various loans from international organizations), both federal and local, radical reform of public finances and monetary policy, the introduction of a system in which money emission will be 100% backed by foreign exchange reserves at the official rate. This program was later started to be implemented by the governments of Kiriyenko and Primakov.

More recently, Illarionov predicted a decline in Russia's economic growth rate from 7.9 to 5.2% due to increased government spending (since the beginning of the year, it has grown from 35 to 38% of GDP). Will this forecast come true?

That's where I stand
It must be said that Illarionov’s views have changed little in recent years. According to him, he formulated seven economic commandments for himself: “Do not steal, do not print counterfeit (unsecured - “Results”) money, do not borrow from your own population, do not borrow from foreign creditors, fully service debts, do not engage in currency regulation and generally limit state intervention in the economy and social sphere.” He was always against the existence of the government securities market, in favor of pursuing a policy of “currency board”, or currency board, which means strict compliance of the ruble money supply that is in circulation with the volume of the country’s foreign exchange reserves. He never ceases to advocate for a sharp reduction in government spending to 17-20% of GDP.

What does Illarionov owe to this unexpected appointment for many, first as an economic adviser to the president, and then as the head of the interdepartmental commission on Russia’s participation in the G8 (of course, besides the fact that he is from St. Petersburg, smart and with an untarnished reputation)? Apparently, the economist is saying what Vladimir Putin wants to hear today. They say that Illarionov was “attached” to the administration after he, together with Voloshin and Gref, reported to the president what the budget message of the head of state should be. Deficit-free budget, reduction in government spending, economic growth of at least 5%. Putin cannot but be impressed by Illarionov’s commitment to a mobilization model of the economy, that is, to renounce foreign loans, pay off external debts from gold and foreign exchange reserves, as has happened in the last year and a half, and the confidence that the state can do without Western investments. After a meeting at the end of May with US Treasury Secretary Lawrence Summers, Illarionov declared, not without pride: “The relationship between the supplicant and the giver is becoming history. We will speak as equals.”

And the most important thing, which probably suits Putin and causes sharp criticism from fellow liberals: Illarionov’s economic ultra-liberalism is completely combined with an indifferent attitude towards civil liberties, towards institutions that protect political and intellectual freedom, freedom of information flows (in fairness, it must be said that the abolition of media controls is one of the first items on his short program). It is not for nothing that Illarionov never tires of appealing to the experience of the authoritarian regimes of Argentina and Chile, as well as China, where, after the bloody events in Tiananen Square, under the conditions of a one-party system, political repression and non-market currency legislation, it was possible to significantly reduce the budget burden on GDP and achieve enviable economic growth.

The Art of the Impossible
Almost immediately after joining the presidential administration, Andrei Illarionov habitually shocked the public by coming up with a set of measures for radical economic reform, which fit on two pages, as a counterweight to Gref’s program. Its meaning is to dissolve most of the ministries and departments, leave the most necessary ones, completely abandon most of the state regulation and quotas, and eliminate the institution of banking control.

“Everyone understands that this is right, and everyone understands that this will not happen,” Dmitry Vasiliev, head of the Center for the Protection of Investor Rights, shares his impressions. “But I profess the ideology of the 60s, when people said: “Be realistic - demand the impossible.” "Real politics is a struggle for impossible goals. Only crazy ideas have been successfully implemented over the years of reform. Privatization is a crazy idea, who would have believed in 1991 that this would happen?"

So, setting unrealistic goals, frightening government officials with their radicalism so that the reform will move at least a little, is the main mission of the new economic adviser? “His most important function is to explain to Putin behind the Kremlin wall what the economy is and how it works,” says Dmitry Vasiliev. “He explains very complex things in a very simple language, citing examples from world experience. He is a brilliant polemicist.”

No one, and probably Andrei Nikolaevich himself, is deluded: he has no real levers for carrying out economic reform in his version. The government will resist in every possible way the reduction of the state apparatus and government spending. There are too many opponents, too much political will is needed for radical changes, especially since today there are many people in the government and the Kremlin who are pulling in a completely different direction. So, for example, administrative regulation in many areas is only becoming stronger, projects conceived under Primakov are being implemented. Let's say, Maslyukov's favorite idea is taking shape - the Bank for Reconstruction and Development, through which huge amounts of investment from the budget should go into the real sector.

But if by the fall the global economic situation worsens (oil prices fall or world stock markets begin to shake again), then radical measures will have to not only be talked about, but also put into practice. And the main thing here is not to get confused in immediate, medium- and long-term goals, to correctly determine priorities. Apparently, Illarionov’s main concern in the coming months will be not so much carrying out reforms as popularizing some immutable truths: it is necessary to reduce the burden on the state and at the same time get rid of state interference in the affairs of commercial structures, reduce the army of officials that has grown over the years of reforms, and introduce into public circulation the phrase “pension reform”, “savings accounts”, “deficit-free budget”. Illarionov is fully aware of this mission: “In order for a reasonable economic policy to be pursued, it is necessary that its principles, approaches, and goals are shared not only by one person, it is necessary that they become the topic of public discussion.”

With the participation of Venus Karpinskaya


(Photo: AP )