#6
Sergey Glazyev on Decade of Russian Economic Reforms
Tribuna
27 December 2001
[translation for personal use only]
Interview with Sergey Glazyev, chairman of Russian Federation State Duma
Economic Policy and Entrepreneurship Committee, by Vitaliy Pyrkh; place and date
not given: "Liberalism on Way Out?"
-- first paragraph is introduction
Some 10 years ago the Gaydar reforms began in Russia. Over this period industrial production has halved, investment in the economy is a fifth of what it was, and half the country's population has become destitute. Sergey Glazyev, corresponding member of the Russian Academy of Sciences and chairman of the Russian Federation State Duma Economic Policy and Entrepreneurship Committee, talks to your Tribuna correspondent about the past decade's results.
[Pyrkh] Sergey Yuryevich, why was liberal ideology chosen to implement the market reforms?
[Glazyev] In order to justify the destruction of the state for personal enrichment. In any case, such a rapid transformation of many senior officials from all the liberal governments into billionaires explains better than any words the meaning given to the concept of "reform" by our "radical reformers."
[Pyrkh] Yes, but in connection with this it is claimed that Russia now has a future -- economic growth has been observed for the third year in a row now. You don't dispute this, do you?
[Glazyev] No, but at what cost? The August 1998 default caused great ructions in Russia -- wages fell by a third, the banking system was destroyed, and trust in our country was undermined for many years to come. Russia was put back 20 years as regards the standard of living. Therefore, the nascent economic revival was achieved first and foremost by a sharp fall in the cost of labor and natural resources, as well as by the judiciously chosen policy of the Central Bank which set a low discount rate for credit. You can add to this the tough position of the Primakov government in restraining prices for the output of natural monopolies. As a result of this the profitability of manufacturing industries tripled and the country's economy finally came to life. But what now?
Now the situation has begun to fundamentally change: For example, this year alone oil and coal have increased in price by 25-30% and railroad tariffs have risen by a third which has had an immediate effect on economic growth rates. From 8% last year they have fallen to 5%. This, if you like, is an assessment of the work of the present government, which is generally speaking serving the interests of the oligarchs as opposed to those of the people.
[Pyrkh] What do you mean?
[Glazyev] Just what I said: There is not a country in the world where 80% of taxes are collected in the production sector and 50% of them are subsequently spent on financial speculation. Just consider the mechanism for "acquiring money" used by the government three years ago: The Russian Finance Ministry issued state bonds (GKO's [short-term state bonds]) with 30-100% interest per annum depending on the market situation and foreign speculators sold dollars to the Central Bank and bought rubles to obtain them. For its part, the Central Bank issued rubles to obtain dollars and invested the foreign currency in bonds of foreign states or made short-term deposits in foreign banks, whose return did not exceed 7% per annum. And thus guaranteed a stable ruble exchange rate.
As a result of these "transactions" the net loss to the Russian state at various times during the building of this financial pyramid has been 10-95% per annum for each dollar purchased and just in transactions with foreigners the losses to the Russian financial system were, for example, around $4 billion in 1997.
[Pyrkh] But now the situation has changed and the government has learned something. Why then did you so determinedly oppose the adoption of next year's budget? The "development budget," as the government itself called it.
[Glazyev] This is just fine words. Actually, the development budget has already for the second time been excised from the federal budget as it is illegal. And the current Russian Government is continuing the previous policy of servicing the oligarch clans and plundering the country. Judge for yourself: We are told that a development budget is being adopted, but there is no development in reality -- for example, there is a R20 billion shortfall in it for science, though by law no less than 4% of the GDP should go on it. The same goes for education, healthcare, and so on and so forth.
Not even the norms enshrined in the Constitution are being fulfilled! Instead of a socially-oriented economy the government is establishing a subsidy economy, in which "only the 'strongest' survives." The country withers away and we cannot pay family allowances in spite even of the risible sum involved!
[Pyrkh] There is no money, they say....
[Glazyev] But there is money to repay debts to international financial institutions, isn't there? True, debts must be repaid, but not at the expense of your people's last resources! It is simply stupid to remove from internal circulation almost half the annual budget to pay off debts! In this way Russia will never recover whatever the price of oil.
[Pyrkh] Incidentally, on the subject of oil.... What do you think of the view of economists who consider that if world oil prices collapse, Russia can only win?
[Glazyev] All this hysteria surrounding oil prices seems contrived to me and is clearly to order: Throughout the industrial world the cheaper fuel is, that is energy sources, the better this is for the economy. It is no surprise that the United States and Europe are following the situation in world markets so carefully. But here too Russia prefers to go "its own way" as the Russian oil barons, who are accustomed to working with 40% profits, cannot even imagine that you can share with the state and are attempting to immediately shift all their problems onto the treasury. And are trying to recoup their export losses by increasing prices in the internal market. Which drives the Russian economy still further up a blind alley and will make its output unprofitable. It is here that a tough government stance is needed, if it is really interested in supporting the Russian commodity producer to protect the interests of ordinary citizens.
[Pyrkh] Sergey Yuryevich, you are one of the authors of the alternative budgetary policy blueprint. What is its main tenet?
[Glazyev] To use for the people's good the resources which at present are not trickling but flooding abroad. Most at issue is profit on natural resources: It amounts to around $10 billion per annum and only a third of it becomes state revenue through export duty. The remaining money goes into the pockets of those who "privatized" for themselves the natural resources which by law belong to the entire people.
Incidentally, this year Russian President Vladimir Putin brought this up for the first time but the most powerful government lobby managed to defend its interests. Instead of a so-called supplementary income tax, which exists in all civilized countries and enables excess profit to be used to benefit the majority of the population, the "democrats" managed to get through the State Duma a draft law on mineral extraction. Which, it is not hard to guess, is simply added to the cost of the raw material, meaning that none other than the consumer pays it. The profit on natural resources has simply remained in the pockets of those who extract oil, coal, and aluminum.
A second source of foreign currency income for the country's treasury is the export of capital [as published]. Surely it is not normal for up to $20 billion to be sent abroad from Russia every year? The country is being ruined by tolling schemes and offshore funds more than under Mamai [Mongol-Tatar khan who laid waste to Rus].
Thus, from these two sources alone it is possible to double the budget and channel resources into the restructuring of the economy, social support for the population, and the creation of highly profitable and lucrative production facilities. According to our calculations, the annual growth of the economy might in that case amount to 8-10% per annum. Otherwise, a new depression awaits us in just several years' time.
[Description of Source: Moscow Tribuna in Russian -- Newspaper focusing largely on industry and the energy sector; owned by Gazprom.]
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