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. Last Updated: 07/27/2016

Economist Takes Central Bank to Task for Policies

A top Western adviser to President Boris Yeltsin on Wednesday compared Russia to inflation-ravaged Weimar Germany and lambasted the Russian Central Bank for "flooding" state industries with cheap credits.


"The Central Bank keeps pumping out money to tank and rocket factories while the people suffer from inflation", said Anders Aslund, director of the Stockholm Institute of East European Economics.


"This is the traditional priority of the Soviet establishment and it's socially explosive", Aslund said during the first of a two-day international business conference sponsored by the Financial Times.


Viktor Gerashchenko, chairman of the Central Bank, responded at the conference by strongly defending the 1. 3 trillion rubles the bank has allotted in subsidies and announced that 1 trillion rubles more will be granted by the end of December.


"The Russian government has the contradictory task of stimulating the economy and controlling inflation", Gerashchenko said. "This can be solved through credit regulation. The Central Bank must have a leading role".


The contrast between the two men's speeches highlighted the ongoing debate now raging in Russia over the proper course for economic reforms. On one side are radical reformers who advocate the rapid movement of Russia to a market system modeled after Eastern Europe.


On the other side are Gerashchenko, industrialists and hardline parliamentarians who want continued state subsidies and a gentle landing for the former Soviet economy.


Aslund, one of a select group of Westerners advising Yeltsin on Russia's transition to a market economy, said he believes the hard-liners are winning so far. He charged that Russia's economic shock therapy only lasted four months and that, since April, reforms have been "grinding to a halt".


In addition, he said today's Russia is "chillingly reminiscent" to 1922 Germany, when the fledgling democracy with disputed borders experienced hyperinflation and a loss of national pride, paving the way for a "red-brown" coalition -- and Hitler.


"The West must become serious about Russia, or anti-Western sentiment here will grow", Aslund said, chastising the West for only giving $8 billion in aid and credits, and charging that Western "supposed support" for Yeltsin stopped after the collapse of communism.


Aslund also blasted Arkady Volsky's Union of Industrialists and Entrepreneurs, and its umbrella group Civic Union, the opposition coalition group Volsky leads with Vice President Alexander Rutskoi.


While the Western media has characterized Civic Union as "centrist", Aslund called it the "main threat" to Russia and called Volsky, a 60-year-old former personal advisor to Soviet presidents Yury Andropov and Konstantin Chernenko, a "quintessential Brezhnevkov".


"The Russian establishment and the West favor Volsky, but even he admits he has no knowledge of economics", Aslund said. "Volsky has no interest in economic development and wants the economic elite to prevail".


Aslund said the Central Bank's credits have contributed to Russia's four-digit annual inflation rate.


"Gerashchenko isn't even trying to stabilize the ruble. He's just trying to keep production going", Aslund said.


Anatoly Chubais, vice premier in charge of privatization, who also spoke at the conference, justified the "harsh and cruel" aspects of reforms, such as the wiping out of savings accounts and low incomes for pensioners, as a necessary stage of in-depth reform.