#2 - JRL 7129
April 3, 2003
Illarionov: Economy Lagging Behind CIS
By Victoria Lavrentieva
Russia is not only losing its position in the world economy, it has already lost its position as the economic engine of the former Soviet Union, presidential economic adviser Andrei Illarionov said on Wednesday.
"Russia can no longer be considered the economic engine of the Commonwealth of Independent States," Illarionov told a conference organized by the Higher School of Economics, adding that the economy is headed for derailment unless reforms of the natural monopolies are sped up and government spending is reined in.
The government is officially targeting growth of 4.4 percent this year, but preliminary data shows 6.1 percent growth in the first quarter, and most economists now say 5 percent for the year is more likely if oil prices stay above $25 a barrel.
Illarionov, however, said that even 5 percent was poor considering the economic performance of other members of the Commonwealth of Independent States.
The economies of several neighboring countries have outperformed Russia since the 1998 crisis, Illarionov said.
While Russia's cumulative economic growth between 1999 and 2002 was 19 percent, Ukraine's was 20 percent, Azerbaijan's 30 percent, Armenia's 31 percent and Kazakhstan's 36 percent, he said. And over the last three years, Russia averaged annual GDP growth of just 6 percent, compared to 9.5 in Armenia, 10.5 percent in Azerbaijan and 11 percent in Kazakhstan.
Illarionov refrained from estimating Russia's economic growth this year, but his pessimism at the conference was echoed by the International Monetary Fund, which played a central role in the default and devaluation fiasco of 1998.
John Odling-Smee, a senior IMF official for Europe, said his institution is downgrading its growth forecast for Russia from its original 4.9 percent.
"We don't see any preconditions for such growth this year," he said.
Other influential economists at the conference took issue with Illarionov's assessment of the CIS economies, including Johanness Linn, the World Bank's vice president for Europe and Central Asia.
Linn said that although Russia is heavily dependent on oil and gas exports, countries like Azerbaijan and Kazakhstan are even more so, and the growth they are experiencing is due less to reforms than the abnormally high price of oil recently.
"If we look at other sectors, I'm sure the picture there is very different," Linn said.
The point was seconded by the head of the Higher School of Economics, Yevgeny Yasin.
Yasin said oil could not account for Ukraine's success. Rather he said, "the economic slowdown that started in Russia in 1998 hit Ukraine later and was much more serious, so the country is now growing from very low levels.
Yasin said that Russia could learn from reform projects in other CIS states, namely Kazakhstan, which has already liberalized its currency controls and successfully overhauled its pension system and energy sector.