PUTIN NAMES ANDREI ILLARIONOV AS AN ADVISOR.

President-elect Vladimir Putin yesterday appointed Andrei Illarionov, the director of the Institute for Economic Analysis, to the post of presidential adviser. The choice is interesting in that Illarionov is a staunch free-market advocate who, at the same time, is untainted by past policy failures or charges of corruption–unlike some of the “young reformers” now associated with the Union of Right-Wing Forces. In 1992-93, Illarionov served as first deputy head of the Working Center for Economic Reforms, under then acting Prime Minister Yegor Gaidar, and later as an economic adviser to Prime Minister Viktor Chernomyrdin, Gaidar’s successor. In February 1994, accusing the prime minister of having carried out an “economic coup,” Illarionov stepped down as Chernomyrdin’s advisor (Russian agencies, April 12). Illarionov has publicly criticized–and criticized strongly–Viktor Gerashchenko, who headed Russia’s Central Bank then as now.

Subsequently, as head of the Institute for Economic Analysis, Illarionov strongly and frequently criticized government policy. For example, following the October 1994 ruble crash known as “Black Tuesday,” he alleged that the government had deliberately driven down the value of the national currency in order to plug holes in the budget deficit. The following year, Illarionov charged that the government’s short term Treasury bills, known as GKOs, had created a debt “pyramid.” This market, of course, collapsed in August 1998.

In an article summing up Russia’s economic performance in 1995, Illarionov predicted that by the year 2000, its economy would resemble that of Argentina under Juan Peron. “The country has already chosen its model of development–it is close to the pre-reform Latin American economies,” he wrote in Kommersant daily. “It will be a highly monopolized economy with large and, as a rule, incompetent state interference. Gigantic financial-industrial groups will be formed, which will tear up the remaining national wealth…. The strength of these groups will be defined not by their competitiveness, but by their proximity to the state” (Moscow Times, January 4, 1996). Illarionov echoed this analysis in late 1996. “The state is not a single entity–it has been privatized in the sense that the officials are being used to further private interests of specific private groups,” he said. “This is the biggest obstacle not only to reforms but also to any purposeful government policy” (Moscow Times, October 26, 1996).

Illarionov’s predictions on Russia’s economic path look quite prophetic today, as does his controversial stance in the weeks and months leading up to the August 1998 collapse of the GKO market and devaluation of the ruble. In June 1998, he declared that the government’s policy of defending the ruble was a failure and that the longer it waited to devalue the currency, the bigger the fall would be. Illarionov argued the ruble’s value would drop no more than 50 percent if the government let it fall immediately. He also called on a total ban on borrowing, while the government was seeking a multibillion-dollar bailout from the International Monetary Fund. Sergei Aleksashenko, then the Russian Central Bank’s first deputy chairman, accused Illarionov of ” deliberately distorting facts” (Moscow Times, June 25, 1998). The following month, after Russia was promised a US$22.6 billion loan from the IMF, then-Central Bank Chairman Sergei Dubinin said that Illarionov’s statements concerning the inevitability of a ruble devaluation were a lie and cited alleged rumors that Illarionov might have a personal financial interest in calling for a devaluation. Illarionov called Dubinin’s allegation “not only absurd but a clear and conscious lie” (Reuters, August 1, 1998). Despite the assurances that there would be no devaluation from Dubinin, Aleksashenko, then-Prime Minister Sergei Kirienko and Anatoly Chubais, who was then Russia’s representative to the international lending institutions, the ruble was devalued in August 1998, losing 66 percent of its value in only three weeks.

IILLARIONOV PUSHES FOR LESS STATE INTERFERENCE IN ECONOMY.