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#9
Izvestia
November 14, 2001
YEGOR GAIDAR: REFORMS ARE LIKE EVOLUTION FROM DINOSAURS TO MAMMALS
An interview with Yegor Gaidar, liberal economist
Author: Georgy Osipov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

FORMER PRIME MINISTER YEGOR GAIDAR LAUNCHED INTENSIVE ECONOMIC REFORMS IN RUSSIA. IN HIS OPINION, THE ECONOMIC SITUATION IN RUSSIA IS PROMISING THESE DAYS, AND THE ONLY PATH TO PROSPERITY IN RUSSIA IS CONTINUATION OF STRUCTURAL ECONOMIC REFORMS.

Ten years ago, Yegor Gaidar launched the reforms in Russia. Now he heads the Transition Economy Institute. The government always consults this think-tank while pondering on some new important economic decision. Our correspondent has interviewed the prominent economist.

Question: What have we achieved since 1991?

Yegor Gaidar: I'd suggest that three years be compared: 1985, 1991, and 2001. In 1985 it was the Soviet economic and political system: with hardened arteries, stagnant, and moving by inertia. It was characterized by stability, but at the same time this system was extremely rigid and hardly able to get adapted to new conditions. If we look through the dynamics of development of the USSR in the 1950s- 70s, we'll see that not a single enterprise was cut in those years. There were no economic instruments in the country that could say which enterprises were useful and which were useless.

Question: Was it this rigidity that destroyed this system?

Gaidar: An important element of the system was the fact that it was heavily dependent on such a hardly predictable market as the oil market. We should keep in mind that the Soviet prosperity was based on abnormally high oil prices. Taking into account the inflation of the dollar and the ruble, we can state that oil used to cost up to $70.0 per barrel. Furthermore, the economy was based on a strange hypothesis that such prices were forever. If the Soviet system had been just a bit more flexible, it could have existed much longer. Its collapse and the subsequent political crisis were caused by the fact tat the political control began to relax and simultaneously oil prices began to decline.

Question: Now let's touch on the second point, 1991.

Gaidar: There was no state as an institute after August 1991. A state should control its territory, its borders. Soviet laws did not work in republics, the USSR did not control its money: there were 15 independent minting banks in Soviet republics. Another trait of this period is the absence of working economy. The socialist system is based on substitution for the market with administrative distribution of products. But substitution for the market with natural distribution based on address deliveries may work only within a strict system. And this system can't work if there is no threat of punishment.

Question: Ten years have passed...

Gaidar: In 2001 manufacturing turnover is considerably lower than in 1985. But the ability of the economy to get adapted to new conditions has increased. These reforms are like a transition from dinosaurs to mammals: we've reduced our weight but acquired speed and agility.

We've gone a long way for these 15 years. This was the way from the USSR that was obviously unable to change to Russia that does have a chance to change today. This is the most important thing today. We have paid a large price for this ability.

Question: How can you prove that the Russian economy has acquired this ability?

Gaidar: After 1998 many experts, including me, were saying that a sharp reduction of import was fraught with gaps on the market. Then it turned out that Russian enterprises managed to reform their manufacturing extremely rapidly.

Question: Have we had a considerable progress about structural reforms? Haven't we delayed them, as we have always done since Kosygin's times (Kosygin was a top-ranking official in Brezhnev's government who elaborated a program of gradual economic reforms but failed to implement them - translator's note) until fuel prices go down?

Gaidar: There was a good progress of reforms over the past year and a half taking into account high oil prices. I had feared that this chance would be wasted. This hasn't happened so far. However, there is an illusion that all reforms may be conducted simultaneously.

Question: Can they be conducted separately?

Gaidar: They should be conducted only separately. Abilities of any government are limited. Every reform is a complicated technical task involving elaboration of documents, search for compromises, foundation of a political coalition, etc. It's important to determine priorities. In May-June 2000, the government was working very effectively in many fields. The next reformation period was in September 2000-April 2001. During that period the government was trying to conduct all the necessary reforms at a time but failed to. A lot of reforms had been planned by April, but the government had not issued draft laws on the pension reform or new chapters of the draft Tax Code, or the draft Land Code. But in April the situation changed.

Question: You are talking about the necessity of compromises. Don't you think their prices will be so high that the government won't have either time or resources for reforms?

Gaidar: We live in the real world. We don't live under absolutism but in a presidential republic. In this republic the pro-government majority is politically indistinct, and the government has to consolidate it before every reform. I think all the compromises have been healthy by now.

Question: We can observe economic growth. Is it caused by high oil prices or by reforms?

Gaidar: It's not worthwhile to connect the current growth with structural reforms. It is important to continue the reforms in order that today's growth might go on. But high oil prices are not the only cause either. It is connected with economic changes at the micro- level. In 1992, most enterprises were administrated by teams that were absolutely incapable of working in market conditions.

Question: The State Statistics Committee reports on the reduction of the number of small and medium businesses. What do you think of it?

Gaidar: Of course, the State Statistics Committee is an important agency. But we know that the number of small businesses is large, but they are under the cover of the "shadow" economy. Let's take the agricultural sector. There is a discrepancy between results of air photography and official statistics of harvest.

Question: There are also statistics of appropriation of investments.

Gaidar: Yes, most of money is invested in the raw materials sector. However, there is a slight increase of investments in the food industry and agriculture.

Question: What about our banking system?

Gaidar: It is weak and will be weak for a rather long time.

Question: Can manufacturing be galvanized if only some 20% of citizens participate in commodity-money relations, and others just don't have money to buy things?

Gaidar: Statistics prove some growth of commodity turnover, growth of real wages by about 22%. By the way, this factor is hazardous too. The consumer demand is growing, as well as the manufacturing in the food industry. I don't understand what such legends are based on.

(Translated by Kirill Frolov)

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