Publication: Eurasia Daily Monitor Volume: 3 Issue: 5

The December 27 resignation of Andrei Illarionov, Russian President Vladimir Putin’s economic adviser, is yet another sign of Russia’s departure from the liberal economic path. In the meantime, Illarionov’s exodus also marks an end to insider criticism of a number of Kremlin policies, including a perceived over-reliance on China.

Illarionov, who Putin appointed within weeks of becoming president in 2000, watched his influence deteriorate in recent years. Yevgeny Yasin, an economist and former Russian cabinet minister, said that Illarionov did influence Putin’s economic policies during his first presidential term, but lost his clout after 2003.

Illarionov explained his resignation in his customarily blunt words: “I didn’t start working for such a government, I signed no contract, took no oath, I can no longer work at such a post.” Furthermore, “This year Russia has become a different country,” Illarionov said. “It is no longer a democratic country. It is no longer a free country.”

There was little reaction from government officials. Russia’s Economic Development and Trade Minister German Gref described the resignation as “negative,” although he had often been a target of Illarionov’s criticism.

Russian media outlets explained Illarionov’s departure by his perceived irrelevance inside the Kremlin. The Russian president “no longer needs liberal camouflage,” Kommersant commented on December 28. Illarionov’s latest advice sharply contradicted plans of state-controlled Gazprom and Rosneft, the Vedomosti business daily wrote on December 28. Everyone in presidential entourage was fed up with Illarionov, Novye izvestiya added (December 28).

Some of Illarionov’s economic plans and suggestions had materialized. For example, he had suggested that Russia set up a “stabilization” fund and use petro-dollars to pay down foreign debt early. In 2005 Russia used $15 billion from its oil fund to pay the Paris Club of creditors ahead of schedule.

However Illarionov had suffered a series of setbacks. He fiercely criticized the government’s support for the Kyoto Protocol on global warming, saying the treaty was a kind of economic “Auschwitz.” Nonetheless, Russia ratified the convention. Illarionov also strongly opposed Unified Energy System (UES) head Anatoly Chubais and his reform of the nation’s energy industry, but he was unable to block the UES reforms.

Illarionov’s frustrations came to a head on December 27, when announced that he had submitted his resignation, saying he did not like the path the state was following. “When I took the job, we spoke about conducting a liberal economic policy. Now, the state has evolved in quite the opposite direction,” he argued. He also criticized what he called a return to inefficient state control of the economy. President Putin signed a decree relieving Illarionov of his duties on December 27.

In 2004 Illarionov called the government’s seizure and sale of largest Yukos production unit to state oil company Rosneft the “fraud of the year.” Illarionov said the biggest theft of 2005 was the billions of dollars in loans to state companies such as Rosneft and Gazprom. He also lashed out at Gazprom’s acquisitions of Sibneft.

Illarionov said the gas price increase was a political weapon used against Ukraine. He claimed the Kremlin had asked him to help spin the price hike as a free-market measure, but that he resigned because the move “had no relation not only to liberal economic policy, but to economic policy at all.” He complained to Ekho Moskvy radio, “Energy weapons are being used against neighbors” (December 31).

In a yet another affront to the Kremlin’s policies, Illarionov praised the Ukrainian government of President Viktor Yushchenko for annulling the dubious sale of the state-owned Kryvorizhstal steel plant to the son-in-law of former president Leonid Kuchma for $800 million. The plant was later re-sold to a German-Indian firm for $4.8 billion.

Not surprisingly, Viktor Chernomyrdin, the former Russian prime minister and current ambassador to Ukraine, said Illarionov’s criticism of the government was unfounded. “There was so much malice in him; he was being overly negative,” Chernomyrdin argued. “It was a mistake to keep him in the Kremlin for so long” (Interfax, December 28).

Illarionov had been Chernomyrdin’s economic adviser in 1993, but he was fired in April 1994 for alleged violations of “labor discipline.” Illarionov was appointed Putin’s economic adviser in April 2000.

Yet apart form criticizing a return to state control of the economy and the Kremlin’s policy towards Ukraine, Illarionov also questioned Russia’s would-be role as a leading global energy player. He said that Russia’s selective approach to energy exports, as indicated by the gas row with Ukraine, in fact undermines Moscow’s stated goal to become a “reliable energy supplier for the whole world.” The development could also bury Russian plans to become a transportation link between East and West, he said (Ekho Moskvy, December 31).

In the meantime, even before becoming Putin’s economic aide, Illarionov had been critical of Moscow’s perceived over-reliance on Beijing in its East Asian policies. Illarionov had questioned the wisdom of increased arms exports to China, a policy that he described as arming a neighbor that was becoming stronger. With Illarionov gone, there is no one left in the government to question the Kremlin’s Beijing-oriented Asian policy.