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. Last Updated: 07/27/2016

""Legal and economic nonsense

A former leading economic advisor to Mikhail Gorbachev, in an interview with The Moscow Times, sharply criticizes the reform policy of Russian President Boris Yeltsin, calling the plan "legal and economic nonsense".


Petrakov, currently director of the Institute of Market Problems at the Russian Academy of Sciences, said he agreed with Deputy Prime Minister Yegor Gaidar's attempts to strengthen the ruble, but wondered at his approach.


"To tell you the truth, I still don't understand which ruble it is that Yegor Gaidar and his team propose to strengthen", he said. "Do they want to strengthen it in conjunction with the other states of the Commonwealth?


The other states, in my opinion, are behaving completely differently. Moreover, what's happening now can only be termed legal and economic nonsense. Gosbank has been dissolved, and the Central Bank of Russian has taken over its functions, in effect confiscating the mint".


The lack of control between money policy and political separatism, which pushes newly-independent republics to pursue their own interests, could lead to a collapse of the ruble, he said.


"For the first time in history an inde-pendent nation is furnishing its money to another independent nation", said Petrakov. "And these other nations are conducting their own monetary policy. In the current situation either Russia, as the sole 'issuer' of money, will crush other countries in conducting its own fiscal policy, or the other countries of the Commonwealth will completely destroy Russia's fiscal system".


"Under such conditions it is simply impossible to make the ruble convertible", Petrakov said. "And statements by the leaders of the country that they will soon make the ruble convertible are simply irresponsible. In order to enter the world market, you have to enter the world monetary system. Given the crazy fiscal policy now being conducted, this is impossible. Producers will not begin to produce until they have confidence in the money".


Petrakov emphasized the impor-tance of a single currency in the CIS.


"The question of national currencies is a question of political ambitions, not economic expediency", he said. "In order for our reforms to succeed we also have to get into contact with the International Monetary Fund and come to an agreement with the countries of the G-7 to support our future monetary reforms. We need a stabilization fund and a clear blueprint for carrying out our reforms".


He said he saw the debt as one of the major obstacles to largescale foreign investment. But once again politics interferes with economics.


"The Russian Federation, of course, will not be able to pay its debts in the near future, and the West cannot write off the country's colossal debt", Petrakov said. "On the other hand, the other republics of the CIS have once again begun to show interest in dividing up the foreign debt, understanding that otherwise they will be unable to count on the financial support of the developed countries. As a result things have come to a dead-end. The countries of the CIS want to take their share of the foreign debt, but each state is trying to minimize that share. And, of course, there is no sure way of calculating that share. The dragging out of negotiations on the foreign debt puts off processes which must become the basis for the economic integration of Russia, as well the other countries of the CIS. I mean attracting Western credits and major Western capital. For the time being the international community has no guarantees or firm commitments on this score".


Though these problems add up to a poor outlook for foreign investment, Petrakov notes two sectors which are most promising for immediate strategic investment: military conversion and energy.


With conversion, however, he noted that much of the potential was still classified and therefore inaccessible to foreign investment. He estimated that 70-83 percent of the defense complex could be declassified without harming national security.


"The military-industrial complex has the best potential, and the most highly qualified workers", he said, echoing the mantra that can be traced to the earliest stages of Gorbachev's perestroika.


Energy may be the most promising sector for foreign investment, Petrakov said. "Specialists know that with current Western technology many deposits and oil fields in Russia and the CIS are extremely interesting to the West, and could bring enormous profit. and here we don't have to wait for a convertible ruble, as the product itself is convertible".