ILLARIONOV CRITIQUES RUSSIA’S OIL ADDICTION.

German Gref, Russia’s economic development and trade minister, predicted this week that Russia’s gross domestic product would rise by 6.8-7 percent this year, but acknowledged that the growth was largely contingent on such factors as high world oil prices. If structural reform of Russia’s economy is not carried out, Gref warned, further economic growth will be impossible (Moscow Times, October 25).

Likewise, Andrei Illarionov, President Vladimir Putin’s economic adviser, warned in an interview this week that it was dangerous to base economic policy on an US$21-per-barrel price for oil, as did the authors of Russia’s draft budget for 2000, given that world oil prices were bound to drop. Illarionov said the budget should be based on much more cautious projections, including a US$10-per-barrel oil price. As for the issue of structural reforms, Illarionov noted that Russia’s tax burden, which amounted to approximately 30 percent of GDP during each of the last two years, will come out to 37-38 percent of GDP this year. The presidential adviser, who believes that a country’s economic growth rate is inversely proportional to its tax burden and the level of government interference in its economy, said that the “optimal” tax burden for a country like Russia is 15-17 percent, as in Hong Kong. According to Illarionov, the tax burden in China is even lower than in Hong Kong–around 13 percent. Illarionov, who has argued in the past that genuine liberal economic reforms were never carried out in Russia, said in his interview that Russia ranks ninety-third out of 123 countries in terms of its level of economic freedom (Izvestia, October 25). In a separate interview this week, Illarionov said that economic reform in Russia had been “modest,” and that the movement in many areas was “backward rather than forward” (Russian agencies, October 24).

In an interview published last week, Illarionov said that one of Russia’s main misfortunes–its “tragedy,” in fact–is its natural resource wealth. “We have too many reserves, and this is largely why there is such a staggering shortage of rational policy and rational politicians, good economists, businessmen and journalists,” Illarionov said. “I would say that these two groups of resources are in inverse proportion to one another.” He added that Russia’s real revival would only occur with a “considerable, long-lasting and irreversible fall” in natural resource prices, the “rent” from which is “corroding the Russian authorities and society as a whole.” Illarionov also repeated his call for Russia to end borrowing from international financial organizations (Vremya novostei, October 19). Illarionov’s views concerning Russia’s borrowing from the IMF and other world lending institutions clearly puts him at odds with such officials as Kudrin and Gref.

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