Illarionov: Growth Not Sustainable

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The vital statistics of the nations economy are the best in 30 years, but at the same time this year has been one of missed opportunities, Andrei Illarionov, economic adviser to President Vladimir Putin, said Wednesday.

"These results are the most impressive indicators of Russias development for the past third of a century," he said at a news conference.

Illarionov forecast the year will end with 7 percent gross domestic product growth and 10 percent growth of industrial output. He predicted investment will be up 20 percent for the year, exports up more than 40 percent and wages up 23 percent.

The economist, who is one of the Central Banks harshest critics, said the banks hard-currency and gold reserves will have more than doubled to $30 billion over the year.

However, the tone of most of Illarionovs address was negative. He said that the economic growth achieved in 2000 "is not sustainable."

The growth was mainly due to external factors such as high world prices for energy exports rather than the governments effective management of the economy, he said.

Illarionov referred to the positive economic indicators as "unmerited success" and said that Russia had earned more than $16 billion solely from changes in world prices rather than from effective economic policies.

He said still greater economic growth could have been reached.

"The government could not cope with the tasks of managing the economy," Illarionov said.

He blamed the so-called Dutch disease for a fall off in growth in the third and fourth quarters of this year after being very high in the first half of the year.

Dutch disease refers to the tendency of large influxes of income from the export of energy resources to raise the exchange rate of a nations currency and damage competitiveness in the non-export sector of the economy.

He also blamed Dutch disease for increasing inflation. He predicted the rate for this year will total 21 percent, significantly more than the 12 percent to 14 percent inflation projected by the government in May.

On the subject of foreign debts, Illarionov said that if Russia does not pay off its foreign debts inflation will continue to grow and economic growth will falter.

"We should pay the debt not only because responsible countries pay their debts but because under the current conditions, it is the most effective method of sterilizing the mass of surplus rubles that cause inflation and slow down economic growth," he said.

Illarionovs statements did not impress Alexei Kazakov, economy and politics analyst for NIKoil brokerage, or Marina Ionova, politics and economics analyst for Aton brokerage.

Kazakov said that Illarionov has been making very similar statements since he became Putins adviser in 1999.

"He hasnt changed his style since he began working for the government," he said.

Ionova said that Illarionovs comments were politically motivated and most likely indicated his desire to obtain a position in the Cabinet, possibly as economics minister.

Illarionov, who is also Russias envoy to the Group of Seven leading industrial nations, spoke the same day that a World Bank mission arrived in Moscow to discuss how to monitor structural reforms that could be the basis for future aid from the World Bank.