#9 - JRL 8006
TITLE:
RADIO INTERVIEW WITH ANDREI ILLARIONOV, ECONOMICS ADVISOR TO THE PRESIDENT OF THE RUSSIAN FEDERATION
[EKHO MOSKVY RADIO, 15:07, DECEMBER 30, 2003]
SOURCE: FEDERAL NEWS SERVICE (http://www.fednews.ru/)

Anchor: It's 15:07 Moscow time and with us is Andrei Illarionov, the President's advisor on economics. Good day.

Illarionov: Good day.

Anchor: And a Happy New Year.

Illarionov: And a Happy New Year to you and our listeners.

Anchor: For a person who studies the country's economy what was this year like for you? And could you name the best event or process that has happened to this country and the worst event and process?

Illarionov: I would say that this has been a complicated year from many points of view. Speaking about the economy, on the whole it has been rather a good year -- this is true. It's another question that the price, or rather the instruments with the help of which good results have been achieved may not be long term and they cannot be sustained, and we are well aware of that. The country has not been exposed to the test of adverse external conditions, the country has been and still is in exceptionally favorable external economic conditions for the last four years. And the last year was unique in that sense. So, we have not passed the tests by low oil prices, we have not passed the tests by a more favorable economic climate in many other countries. We have not been exposed to this. Nevertheless, the situation in the longer term appears to be far more difficult and complicated for the country. Other countries are developing faster, other countries are competitive and are building up their competitiveness at a rate that is at least as high as that of the Russian Federation.

Anchor: We will come back to this question and look at it in more detail. But first I would like you to take off your hat as economic adviser and answer a political question. This is my question. Elections to the State Duma have passed. Very many of our citizens see the elections as something that is unconnected with their lives, the economic life of each family. And an election is always -- we have already spoken about it today with Kommersant's observer Nikolai Vardul and with Irina Khakamada who was here just before you -- an election is always a contest of models and programs, a contest of models of a future society. The winning parties apparently have a model to offer. Let us not for the moment speak about the model proposed by United Russia. Honestly, we do not understand it. It is not very visible behind President's back. However, if we consider, say, the last parliamentary elections and their results in terms of what model of society and economy the Russian population prefers, what conclusions can you draw?

Illarionov: I think conclusions can be drawn. Moreover, the elections provided a vivid example of the contest of different models -- programs, ideologies, personalities and moralities. And I have to say that our voters have voted for corresponding models.

Anchor: It's interesting that you have agreed with the view that elections are about the model of future society.

Illarionov: Not necessary a future society.

Anchor: Okay, present society.

Illarionov: I would put it this way. Of course people do not always say -- we want to see how this or that person imagines the future, but by instinct, of course, they voted for what corresponds more to their understanding of how we all should live. It does not necessarily refer to the future, it may refer to today or perhaps tomorrow. Not necessarily the day after tomorrow.

Anchor: You are trying to quibble over words. But I get the general message.

Illarionov: It's not that I am quibbling over words. People don't always think in terms of how they will live twenty years on.

Anchor: Okay, let us look at the year 2004. Let us admit that the elections have revealed the trends that the President has mentioned. Let us not make too much of the figures -- 37 percent, 35 percent. The trends are there. From your point of view which model was chosen and which model was rejected?

Illarionov: Let us first --

Anchor: First, the models.

Illarionov: Look at the models that have been rejected.

Anchor: All right.

Illarionov: For example, it is not a secret that the Communist Party of the Russian Federation, whatever its campaign slogans were and whatever program it put forward nevertheless was associated -- not without grounds -- with the model that existed in the country before 1991. So, that model always attracts a certain number of votes. A considerable part of the population votes for this model although the share of those who vote for this model is gradually going down, and it dropped substantially during these elections. Such people exist, they are out citizens. They consider this model to be the best, the justest and the most correct.

Anchor: We can call this the socialist model as it was practiced in the Soviet Union.

Illarionov: Yes, it is a model that existed before 1991, during the preceding 20 or perhaps 30 years. That's one model.

Anchor: Just a second. You believe that the economic ideas for example of the representatives of Zhirinovsky's party and Motherland represent a different model? I have the impression that they also were talking about a country that existed before 1991.

Illarionov: Speaking about economic models, of course these are different models. There is no doubt about it. These are the different models. Different economic models and different administrative models. And, as we have discovered these models have a following. For example, the model proposed by Zhirinovsky and his Liberal Democratic Party has been the same in at least four parliamentary elections and much of the population votes for it. Some people may not be pleased with this but the fact remains that much of the country's population associates its -- and this is not a joke as some believed in 1993 or in 1995 -- much of the population seriously associate itself with this system of views, this approach to internal life, this approach to external political issues with the position that Zhirinovsky and the LDPR has reflected. Another model was presented by SPS party and this model has in fact been rejected. A little over a million people voted for it.

Anchor: No, two and a half million.

Illarionov: Let it be. But the point is not that less than 5 percent have voted or a little more than 5 percent have voted, all the same the model got a comparative minority of votes. Why? Because its seems to me that people have voted for the model that was associated for them with the predominant trends in the country throughout most of the 1990s -- falling production, unemployment, inflation, crises, devaluations, defaults. This policy and this economics which by the way was accompanied by such words as liberal and radical reforms meaning devaluation, inflation, crises and unemployment -- that model did not win the support of much of the population. And we can see that throughout ten years, for example from 1993, the number of people and the share of the voters who vote for this model is steadily decreasing. This is a serious reminder about the direction in which Russian society is really moving. Again, some people may not like it. For example, many Russian intellectuals, the intelligentsia in Moscow, the representatives of the media.

Anchor: But I like it.

Illarionov: And indeed we see obviously uneven distribution between the adherence of this model among certain social groups and the population as a whole. So, we should try to analyze why the model that sees falling living standards does not have the support of most of the population. From my point of view it is absolutely normal, it is absolutely natural because man in general and the Russian man likes most of all -- this is in line with his inner convictions -- raising the standards of living, not lowering them, the work, not just its absence, low prices, low pace of inflation, not high rates of inflation, neither devaluation, not defaults, nor crises whatever the sweet and beautiful and the remarkable words that go with it. The thing is that we could see it once again...

Anchor: We paid a price.

Illarionov: One could believe these words, these slogans only once. And this was what happened. In 1993 quite many people voted for that party, for those people.

Anchor: Fifteen percent.

Illarionov: Another time one could also vote, believing that maybe not everything had come out right, not everything proved possible to accomplish. Maybe it will come out right next time. If such a policy continues for a long time, the position of those people remains the same, it does not change a bit despite the fact that the situation in the country changes, despite the fact that other people and other social forces appear which are offering an alternative. And the alternative is no less attractive to many people.

Anchor: Now let us speak about the models that have won. So, roughly speaking, they are Zhirinovsky, Motherland, United Russia?

Illarionov: No matter what attitude one takes to this, over a third of the population, over a third of the voters who came to the elections voted for United Russia.

Anchor: What have they chosen as a model?

Illarionov: They have chosen the model that is being effectively implemented in the country over the past four years. They don't know how it is called, what are the "isms" attached to that model. They can see that for four years there is no crisis, production is growing, unemployment is gradually and slowly decreasing, the standards of living rise, the wages go up and incomes are growing. Correspondingly, there appears the opportunity to do something that could not be possible during the previous 1990s. That is why for people this economic model is naturally associated with the person who is now the president, with the party with whom the president is associated. That is why regardless of whether this is liked or not, people are guided by their own wallet, their own position, their own wellbeing and that of their family and children. They say: under what conditions can my children successfully finish school and enter a higher education establishment, get an interesting and well-paid job, to go on vacation, build an apartment or a house, buy a car or something else.

Anchor: We have started our conversation talking not about the entire four years but rather about 2003 and we said that people may not understand that largely the wellbeing and the stability are due to certain external favorable factors. People are not interested in knowing thanks to what it is, aren't they? But what if those factors disappear?

Illarionov: You know, Alexei, all this is practically...

Anchor: A risk, a tragedy.

Illarionov: Practically it is impossible to explain to the wide electorate, to the people thanks to what all this was possible to accomplish. This is indeed impossible.

Anchor: It is not important to them.

Illarionov: It is important to many. But it is impossible in terms of the so-called electoral behavior to explain that the half a percent of growth was due to this. With high oil prices it is impossible explain that what we have received occurred mainly thanks to the favorable foreign economic situation and only to some extent due to the efforts put in by the authorities. In this case, different political forces, different political parties may find themselves to be hostages either to a favorable market situation or an unfavorable market situation. This is what they call luck or happiness. Some indeed have a stroke of luck, others don't. Pushkin said: "Happiness is a spoiled child of fortune."

Anchor: A spoiled child it is.

Illarionov: Yes, half the country...

Anchor: Recently Boris Yeltsin said at one of the meetings: "If only I could have such oil prices in 1998!"

Illarionov: Not only Yeltsin but many others recall this.

Anchor: Recall the default?

Illarionov: Actually we have already spoken about it. From a purely economic point of view, of course, the deviation of oil prices so long and so significantly away from the medium-term trend, as has been the case over the past four years, is, of course, a big problem for the country.

Anchor: But let's get back to that. Andrei, Motherland is one more successful project. I have in mind the Motherland movement, many say that it is a Kremlin project. It is probably true that it is quite artificial considering that a presidential special representative is heading the movement in question. But one should not forget that about 10 percent of the voters voted in favor of that movement. What did they opt for?

Illarionov: You know, I would not exaggerate the influence of some bureaucratic forces, if there was such influence.

Anchor: But there was.

Illarionov: In regard to certain projects it used to be said and it is still being said that the projects are Kremlin projects. Motherland is not the only case concerning which such views are expressed.

Anchor: But let us talk about Motherland.

Illarionov: However, other projects did not get 10 percent of the votes.

Anchor: That is why I say that something was established but nevertheless it received 10 percent. Now let us take away the administrative resource and the media resource. Why did people vote, why did they choose a particular project, I mean those who voted sincerely for that?

Illarionov: I think that it is quite a curious project in a way. Objectively, if we analyze it, then of course to a large extent people voted for the leaders. They voted for the leaders that were visible on the screens, for those leaders who made statements, those leaders who explained what positions they were advocating, for the leaders who managed to stay on TV, who argued and discussed things with other quite experienced political figures. And it should be said that in many cases they were winning, including the duels in words. Even when the victory was adjudged to others by the votes. Incidentally, many people could see that in the well-known Rogozin-Chubais duel, Rogozin was obviously the winner. Everybody could see that. And this is regardless of the attitude people take to this.

Anchor: Regrettably, I did not see the discussion. So, I am not prepared to discuss it with you.

Illarionov: But the fact is that for some strange reasons the victory went to another person who could call many voters to vote precisely for Motherland. That is why our people and many in the country have a very important sense, the sense of justice. If they see that right before the eyes of an honest public a deception is being enacted, then, when they are invited to take part and to make a choice, to provide an assessment -- they go to the polls and vote for the one who, they think, was dishonestly deprived of the victory. In this way I think that the people who were organizing the NTV programs several days before the elections, did poor service to Rogozin's partner in the same verbal duel and served Rogozin himself quite well.

Anchor: But still, it was not some single program that decided the destiny of Motherland and its victory. Can we speak of a victory?

Illarionov: You know I think that in the event of Motherland mass media played a colossal role because...

Anchor: It seems to me that the word "rent" is something huge. There was an election campaign devoted to one economic topic: to take the rent away and to distribute it among the budget-funded people. I remembered this. Can you imagine, Andrei, that I remembered it?

Illarionov: This is no surprise because you are working at a radio station and you are supposed to follow the events.

Anchor: Not only that. I also follow the nuances. But in this case there were no nuances.

Illarionov: You know, actually not only Motherland supported the rent. Motherland was the first political organization that raised the topic of natural rend. In reality the author of it is Sergei Yuryevich Glazyev who presented the idea several years ago. The fact is that in this election campaign practically all political forces rook up he slogan of natural rent. This includes the political forces which failed to get even five percent of the votes. So, I don't think people have voted for collecting the natural rent so it be collected and distributed equally. People have voted above all for concrete individuals, the political leaders they saw on the screen and who came out for ... in the case of Motherland...

Anchor: In the case of Motherland.

Illarionov: It seems to me that in the case of Motherland, people voted less the model because this is not a passed model, a pre-1990s model and not a 1990s model, it is not a model of the first four years of the 21st century that all people see and experience every day. It is a kind of model, if it were articulated in terms of theory, actually everybody knows well the programmatic substance of Motherland and the substance of the Communist Party of the Russian Federation and that the two differ very little from each other. And this is not surprising because both programs have one and the same author -- Sergei Yuryevich Glazyev. So, from that point of view you can't say that in one case people chose not to vote and in the other case they decided to vote. People voted for a concrete individual.

Anchor: Then I would note parenthetically because truly one of the electoral issues -- I agree with you there -- was "rent," in quotation marks because I don't quite understand how people use the same word to denote different things. Let us agree on terminology.

Now I would like to ask you as the President's adviser about the substance and what can be done and what needs to be done and who has used it in a populist way and who has used it properly?

Illarionov: I wouldn't do it.

Anchor: Why?

Illarionov: Because it is true that different people read different meaning in this word, in this word combination. To my mind all the meanings are wrong. The phrase itself is wrong. By throwing in this idea and attempting to flesh it out in legal terms won't be of much avail. So, it would have been better if the term hadn't been used at all.

Anchor: But it is already known that the draft law on raising... By the way, let me put my question in a different way. The President in his television program answering the questions from the people spoke about taking away the super profits of the oil and gas monopolies. And I asked myself, what is a super profit? There exists profit. But what is over and above the normal profit? What is the difference between the super profits and rent? Can you explain it, please?

Illarionov: Indeed, many things are confused. When the President answered questions, he meant that additional revenue is raised due to the favorable external economic situation and rising prices of oil and other sources of energy. Additional revenue is raised primarily by those who export these commodities. And proceeding from considerations of social justice and what is thought to be just in our society it would be fair that those who earn these revenues share part of them with others. That is one consideration. As for the draft law that you have mentioned, this is not its main substance. Different oil fields, depending on the natural conditions of these oil fields will have different coefficients so that revenues be deduced from these different companies at different levels. This has nothing to do with higher oil prices. If the oil prices are high in the world market, then it is necessary to change the scale under which export duties are charged, pertaining only to that part of the oil that is sold abroad. As for the internal geological conditions that obtain in different oil fields, these conditions have nothing to do with oil prices. World prices may be 8 dollars per barrel and 28 and 38 dollars per barrel. The geological and mining conditions will remain the same. So, while the talk is about one thing, the law is being drafted and will be adopted that deals with a different thing. So, there is a great confusion of different concepts. So, I would again emphasize that such things should not be confused. The only additional revenue that theoretically could be collected is the revenue arising from additional incomes received by Russian exporters in the world market. But in that case it would be very dangerous to use these assets inside the country because that would lead to oversaturation with money, pushing internal prices up, pushing the real rate of the ruble up. The economy on the whole becomes less competitive and instead of economic growth we have economic decline, a phenomenon well known as "the Dutch disease" which afflicts many oil exporters.

Anchor: Andrei Illarionov and I would like to ask our listeners whether the results of the election attest to the failure of liberal ideas in Russia. If you think that the results of the parliamentary elections do indicate the collapse of these ideas, dial 995-8121, if not, dial 995-8122. These are Moscow telephones and the calls are free. The count is quickly approaching 1,000 calls and... Let us not hurry our listeners on. In the remaining four minutes I will ask you other questions and when the listeners' vote is over, we will hear your comment on the results. Let us take this topic, for example. The President proudly announced yesterday that the country's gold and currency reserves stand at 72 billion dollars which puts us in second place in the world after Japan and so on. And immediately we got questions on our pager: How come? Our wages are not raised, our social benefits are not raised. The President says that a third of the population lives below the poverty line. The country has saved up billions of dollars. Keep 30 billion and give us 42 billion. Andrei Nikolayevich, why does the country need to keep 72 billion dollars at a time when 30 percent of the population lives below the poverty line?

Illarionov: Let us take it point by point. 72 billion dollars was the mid-December figure. By the end of December the figure went up to almost 75 billion dollars. During the past week the figure went up by 2.8 billion dollars. This is an absolute record of world and currency reserves that we ever had. If things continue at the same rate most probably by the end of the year our reserves will grow to 76-77 billion dollars.

Anchor: That's the day after tomorrow.

Illarionov: But we won't know the results until January because there exists a certain procedure when these data become known to the wide public. And it means that during this past year the currency reserves will have grown by about 30 billion dollars. We have never had this before. This is an all time record.

Secondly, as regards the second place in the world, it's the second place in the world after Japan not in terms of the absolute volume of currency reserves because there are a number of countries beside Japan that have substantially more currency than Russia. They are China, Taiwan, Hong Kong, Singapore and other countries. It is the second place in regard to another indicator -- that of the currency reserves-to-import ratio. According to this indicator, we are about at the level of roughly 12 months. This is to say if we assume -- and naturally, it is an artificial and slightly theoretical indicator -- if we assume that the foreign exchange reserves will be used to pay Russia's tradition import. In that case, the foreign exchange reserves would be enough to last for 12 months. Actually, it will be enough for one year. And according to this indicator, we are indeed second after Japan.

Anchor: It is not clear whether it is a cause of pride or we have to be ashamed of it or we have to be afraid of it?

Illarionov: Neither this nor that -- it is a fact. It is a fact which simply characterizes the current state of the Russian economy. And looking at the amount of foreign exchange reserves, their size and correlation with import, with state revenues, with exports, the servicing of foreign debt -- the economists look at how sustainable the particular economy is. Looking at the appropriate Russian indicators, it is not hard to see that today the Russian economy is indeed at a level of sustainability that it did not have for the past 15-20 years, that's for sure. At least I mean the period during which such data exist. Or may be for an even longer period of time. Now thirdly, what is to be done with the foreign exchange reserves?

Anchor: And let us not forget about property.

Illarionov: How to dispose of the reserves? The thing is that one can, of course, eat the grains intended as seeds at once. Especially if one is hungry. But then in the spring it will be quite difficult to sow anything and then it will be difficult to expect to collect a harvest a year later. This is the role played by all kinds of reserves -- insurance reserves, other reserves. They are established in order to live well not merely in the course of one day or one month or one year but during a long period of time. A human life does not end after one year. The life of a nation, the life of a family extends itself to hundreds and more years.

Anchor: Excuse me for interrupting you, but one can stash away and accumulate but the level of poverty will remain 33 percent.

Illarionov: This is not so because the level of poverty has drastically diminished. It is right at the level of about 40 percent in late 1998 and by the end of this year it declined, affecting less than one fourth of the nation's population. This is still a very big figure. Many our citizens still live below the poverty line. Or, below the living subsistence, let us say. Nevertheless, the processes of reducing the level of poverty cannot be performed in a week. One would very much like to, but this cannot be done. Incidentally, during the 1990s we tried to solve these problems in a brief time. The result was in the middle of 1990s, at least according to statistical indicators...

Anchor: 96th and 97th.

Illarionov: People lived well in 1996 and 1997. Incidentally, the poverty indicators were almost as they are today. But we were spending what we did not earn, spending insurance reserves and the stocks. The result was August 1998 -- the crisis. The policy that has been pursued over the past four years or the past five years from that point of view is a much more responsible policy. It is intended for a lengthy period to come. It is not intended to have a nice life for a year or two and then not to know what to do about it and be ready to face the situation when the oil prices fall or when the foreign economic situation will change.

Anchor: So, it is a pillow, let is lie there and we will continue stuffing it with feathers further and pumping it with oxygen.

Illarionov: We must understand that the pillow has been accumulated over the four fat years.

Anchor: Yes.

Illarionov: These fat years are unique, especially in an economic history. We never had such a situation before. And it is not clear whether such a thing will repeat itself. Much more characteristic for us are hard years, years of poor harvest. Years of poor harvest both in terms of agriculture and in terms of the foreign economic situation. In the meantime, during all these 1990s years, during nine years the oil prices were averaging 14, 15, 16 dollars a barrel. So, one would ask: If such a situation continued for nine years, where is the guarantee that these four fat years will not be replaced by nine lean years? And then all those reserves accumulated during the favorable years will come in handy to be used in order to adjust the economy and the citizens to a new situation.

Anchor: Two more questions and then we comment on the result.

Illarionov: There is one more important thing -- it is precisely how to use the money so that they would not just lie idle because it can be used and used very effectively -- to repay our foreign debt.

Anchor: At an early date?

Illarionov: Yes, before schedule.

Anchor: You are in favor of this approach?

Illarionov: Yes, I am in favor of this approach because today we have to pay an interest on our external debts. The average weighted interest is about 7 percent. It is 8 and 10 and 12 percent on certain individual debts. In this way we will pay not only that 119 billion dollars -- that amount of the principal debt that the nation has to pay foreign creditors, but at least another 70, 80, 90 billion dollars in interest which is calculated as the amount of servicing the principal. If we pay our principal debt before schedule, we will be able to save on the interest we would otherwise have to pay if we continued to pay our debts according to schedule. That is why there is a large economic justification for the early repayment of foreign debt. That means that more money will be left for our citizens, for ourselves and there will be more left to fight poverty. If we don't do it, if we continue spreading them out, we will pay much more.

Anchor: Andrei Illarionov. And now dimply a related question. When I was preparing to go on the air, I had very many questions coming to my mind. We will comment on them towards the end, we will "withhold" the intrigue a little. Andrei, over this year the dollar has lost 20 percent vis-a-vis the ruble. Is that so? This means that the ruble is firming up very vigorously and different state officials who deal somehow with the economy -- the word "official" is a dirty word, a minister, a prime minister, that minister -- they say that it will first be good and then it will be bad. It is clear that our population has kept its currency reserves -- in foreign exchange -- in dollars. I even know people who have kept 20 dollars. They exchanged the money some time in the past -- let it remain just in case. I am not asking you how to keep the money further, what will happen to the ruble, what must be done with the ruble and what must be done with the whole process in 2004? What will be happening? Is there a government program in this area? It is hitting the pockets of people hard, the pockets where the money is either in rubles, in dollars or in euros. Even small amounts.

Illarionov: Now note, Alexei, that we are talking about the poor, about who find it hard and then immediately pass over to...

Anchor: The poor also accumulate.

Illarionov: So, how to preserve the money. Indeed, even the poor accumulate dollars.

Anchor: Yes.

Illarionov: People don't accumulate if they are extremely poor.

Anchor: You know, they accumulate, too. They speak of "our money for the coffin" and they mean dollars. Grandmothers say "I keep my coffin money in dollars."

Illarionov: That means that the level of living, including of those poor in the country, is rising albeit slowly if people begin to accumulate money like this.

Anchor: Still.

Illarionov: We came to face this situation not for the first time but it is for the first time on such a scale, with the change in the currency rates -- when the dollars changes 20 percent vis-a- vis the ruble. May be even slightly more. But over the past one and a half year, the dollar's ratio vis-a-vis the euro changed even more. The dollar fell 57 percent vis-a-vis the euro, merely in the past one and a half years. One wonders what the citizens of European countries and the United States should experience as their currency, the dollar has lost so much value in regard to another major currency? You can ask me. The answer is: nothing. Barring the narrow circle of people who work professionally on financial markets...

Anchor: Let us drop them.

Illarionov: The overwhelming majority do nothing. They keep the money in their currency, in the currency in which they hold their savings and then they convert the savings into securities or some other instruments. Actually, we are opening a new economic chapter, one we have never experienced before. Over the previous 15 years we were in a situation of perennial devaluation, constant inflation and that is why naturally we strove to find a way to ensure the safety of our savings. It is for this reason that the dollar made its appearance. The dollar as the most reliable instrument to preserve what has been created or earned by every citizen. Now it transpires that given the lowering part of inflation -- it continues quite high but still it is much lower rates of inflation than in the 1990s -- the ruble, it turns out, can not only plummet and get devalued, as in the 1990s, it can also be revalued and get stronger. In reality we are entering a chapter when our national currency begins to look similar -- not quite yet but similar -- to other currencies. Similar to other normal currencies of normal countries. Inflation rate will go down gradually and the ruble will occasionally grow against the dollar and fall against the euro; on the contrary, it may grow against the euro and fall against the dollar or other currencies. That would be a normal, natural process of fluctuation of major currencies, established and highly regarded currencies of civilized countries -- a process in which all the countries have been during the past decades. This is no cause for concern, it does not spell disasters of crises.

Anchor: The reason why many people worry when they buy real estate is -- it is no secret that in Moscow and other cities it is evaluated in dollars. Now it is the same, only the evaluation is in euros. So, an ordinary person who buys an apartment even on an installment plan suddenly finds that he has to pay 15-18 percent more for his apartment.

Illarionov: Now it's 25 percent more.

Anchor: Yes, this is not an issue that affects a narrow group of people because the housing market exists.

Illarionov: This is a normal process of the country emerging from a dollarized economy. And the first knee-jerk reaction is either to preserve the prices in dollars or to switch to pricing in euros. This is a normal phenomenon. For a while we will continue to be in this state. And if things go normally then gradually we will see prices increasingly being quoted neither in dollars nor in euros but in rubles. It will take several years. It won't happen overnight. Perhaps, there will be a certain correlation between the ruble and the dollar. My own feeling is that prices will continue to be quoted in dollars for some time yet. But if the process of de- dollarization of the Russian economy proceeds at the same rate as during the past year or two then after a few years we may indeed be able to say that the dollar as the unit of pricing will be receding into the past.

Anchor: And the last subquestion on this topic before we leave it. It is said that the dollar will fall to 15 ruble per dollar next year. Is the strengthening of the ruble against the dollar good for our economy? This is the key question. Will it be like oxygen or like a hydrogen bomb?

Illarionov: For those who buy goods denominated in dollars it is good for importers because goods become cheaper. Instead of a good for which one had to pay 31 rubles, one now pays 30 or 29. Naturally, the good becomes cheaper and more goods can be bought. And the purchasing power of the owner of corresponding assets increases. For those engaged in production the situation is much more dramatic.

Anchor: Production for export, above all.

Illarionov: Yes, for export, of course. But also for the internal market because the Russian economy is an open one. And in that case our goods become more expensive and our economy becomes less competitive.

Anchor: What should the government do in order to please both importers and exporters?

Illarionov: I think that the authorities, the government and the parliament and all the companies should do just one thing, to make our economy more competitive, to cut costs, all kinds of costs and improve the quality of products. There is no other way to survive in the modern world. If the goods become more competitive we have a chance in the world market, if the goods become more expensive and therefore less competitive, including partly due to the higher exchange rate of the ruble, as has been happening during the past years, then we will be losing ground on the world markets. So far, the situation has more or less been under control because the Russian economy has seen an unprecedented growth of labor productivity, especially in the outgoing year.

Anchor: But Putin is not pleased with that because he says that incomes are growing faster than labor productivity.

Illarionov: It is true that incomes are growing faster than labor productivity. If we look at the figures, incomes have grown by 14 percent in real terms and labor productivity has increased by 7 percent. 7 percent a year is a lot for the economy as a whole. And we look at industry, it's 11 percent. In some sectors labor productivity growth has been even more staggering. For example, 22 percent in oil extraction. In machine-building, 22 percent, in the coal industry, 15 percent. These are very high indicators that not many countries can match. And if we look at the last five years, from 1998, labor productivity in industry has grown by 49 percent. This is a very good indicator. In machine-building it grew by 71 percent. These are good indicators. Nevertheless, one has to bear in mind that in other countries labor productivity is growing even faster than in our country. For example, the fastest growing country at present is China. In China GDP will grow by 9 percent this year, industrial output has grown by 17 percent and labor productivity is growing at a matching rate. And it has been growing not only during the past year, but over the past twenty years.

Anchor: Andrei, let us go back to our listener vote. Listeners can't wait for the results. All in all we got 3,663 calls in five minutes. And the question asked was, Do the results of the elections attest to the collapse of the liberal ideas in Russia? 47 percent of the callers agreed with this opinion and 53 percent disagree. So, by a little stretch, one can say that it is a fifty-fifty vote. Opinions are divided. I would like to hear your comment and how would you vote?

Illarionov: You know, I think that the results are highly indicative because in my view they reflect different interpretations of liberalism. Those who have called you and said that the past elections attest to the collapse of liberal ideas believe that liberal ideas means the hodge-podge offered by SPS as its electoral platform.

Anchor: So, you think that Yabloko is not part of the picture.

Illarionov: Let us first talk about this because the program put forward by SPS cannot by any stretch of the imagination be described as liberal. You spoke about natural rent... Anchor: Yes.

Illarionov: But SPS promoted this idea at the Duma, to take away the natural rent from oilmen and divide it up. This is a slogan that SPS did not only take on board, but it was the only party that provided a "scientific" explanation why it should be taken away and how much should be taken away...

Anchor: 2-3 billion.

Illarionov: And how it should be divided. Not a single other party, including, by the way, Glazyev's Motherland, has done so. This, of course, has nothing to do with liberalism. SPS has been pursuing the same policy in the preceding four years. The reform of the power industry has nothing to do with liberalism, of course. Indeed, one of the leading members of SPS, being the head of RAO UES, has been working hard to raise tariffs, state regulated tariffs for energy. What has that to do with liberalism? Nothing. The same party put forward the idea of a liberal empire, a monster that is hard to imagine. There cannot be liberal empires. There can be empires. So that party itself put forward the idea. No other party, not even Motherland, Zhirinovsky, the CPRF, not to speak of United Russia, have put forward such imperial slogans. This party did advance imperial slogans. Moreover, it took them on board, it began to propagate them and even started to implement them in the shape of the activities of --

Anchor: Andrei, Andrei...

Illarionov: You see? And looking at this people naturally say: "If this means liberal ideas, then these ideas have really failed." But these are not liberal ideas. So, the people who have voted -- and we got 47 percent or almost half of the people who said that this set of ideas which for some reason are called liberal, has collapsed. Other people interpret liberalism in a totally different way. They associate it with freedom, political freedom, civil freedom, economic freedom and freedom and responsibility and, more importantly, they don't want to forget the moral character, the moral behavior of concrete leaders. And by the way for liberalism morality and ethics are indivisible. Of course, when people looked at the behavior of SPS leaders, some of them, they couldn't have experienced respect for some of those people. And of course, other people who say "no" -- and I have a different understanding of liberalism -- they sincerely believe that the liberal ideas have not failed, those ideas were simply not put forward. No political force has presented those ideas and no political figures have yet defended those ideas. That is why they reserve the right to vote for liberal ideas, to support liberal ideas, a liberal ideology, and liberal politicians when they appear. Anchor: In this connection, my last question. Today, on the air with us Irina Khakamada, one of the co-chairmen of the three letters -- SPS -- you don't like so much, stated in a ... liberal sense that...

Illarionov: This is not true. This is not something that "is not liked so much." I think that the SPS has done great harm to liberalism and liberal ideas because by its activities, its programs and its behavior they discredited the liberal ideas in a way never done before them. In this sense, the damage done by the SPS to the liberal ideas, liberal ideology and liberal movement in Russia is much more than the damage done by certain specific economic figures -- the RAO UES, Chubais or others -- is hard to compare because by such behavior certain SPS figures tried to steal the country's future.

Anchor: In this connection, I still have quite a concrete question to satisfy the curiosity of a journalist. Today Irina Khakamada said she was prepared to be nominated to run for Russia's presidency and called Vladimir Putin as one of her main opponents. What would be your position if Irina Khakamada, I repeat, the SPS co- chairman but in her personal capacity -- she made a point of it -- is nominated to run for presidency?

Illarionov: You know, I have known Irina for quite a long time. She is one of the most worthy politicians of our country. She is a worthy person, and she is much more associated with the liberal ideology and liberal politics than anybody in the SPS. This is indeed so. Moreover, Irina is one of the most courageous personalities and one of the most courageous politicians in the country. There have been many cases, including Dubrovka last year when Irina demonstrated it not just for ostentation but in reality. She is that kind of person. That is why I have the greatest respect for Irina. I think she made the right step. She did an absolutely correct thing. And this she did at a time when the male population of the SPS had hidden like cowards. She nominated herself, presented her candidacy and she will defend those positions that she believes to be right. I would like to wish her success in this undertaking so that in the work that she will be pursuing during the presidential campaign she would be defending the liberal ideas by her words and conduct.

Anchor: Now the last question. I would now get back to you working as adviser to the president on economic questions: in terms of economic reforms, what would we expect in 2004 as a matter of priority, Andrei? What is the priority for next year and we don't know whether it is a fat year or not. But what can be accomplished during the year when we have a State Duma that will vote readily because the president has a majority there, when we have a government and a federation council and the signature of the president, so what would be of priority to accomplish in the economy in the near future?

Illarionov: You know, this depends on the degree of ambition.

Anchor: Whose ambition? The president's?

Illarionov: Not only.

Anchor: Whose else?

Illarionov: On the degree to which the nation is ambitious.

Anchor: Well, the country is very ambitious, very much.

Illarionov: I would like to hope that this is so. This depends on many things. There are different planks. There is one important plank -- to more or less complete the program adopted four years ago. This has not yet been implemented. Many things can be accomplished there and they ought to be. And implementing this program of four years ago would be an extra step forward. In this case it would indeed be possible to impose a certain order on the heavy and involved legislation that we still have in the country. But in my opinion, such steps will not create a breakthrough, a strategic breakthrough for the country given the way it is surrounded at present and in the remaining years. It is important to be guided not by what we had ten years or four years ago or five years, it is important to be guided by what was there in the world ten or fifteen years ago. It is important to look at what the world will be like tomorrow and the day after tomorrow and at the best practices in the world economy in terms of competitiveness, the quality of state institutions, the quality of what is produced, the quality of business. That is a task of a totally different level. And we should look at what the best countries, the most competitive and the fastest growing countries are doing. That is an entirely different task. In recent years we are beginning to approach an understanding of what is happening beyond our country's borders. Our grasp of what is happening there is still poor.

Anchor: We don't understand what processes are taking place.

Illarionov: What processes are taking place, in what direction things are developing, how business is structured, how effective companies are built, how effective states and state institutions are structured. We have a vague idea of all these things. Although our economy purports to be an open economy, our own consciousness is still very much a closed consciousness. In that sense we are heirs to the former Soviet Union. We see ourselves as the successors to a large country, a very large country which allegedly can afford to look down on other countries. But other countries which do not appear to be as large as we, but do not have the dire and unnecessary burden of imperial grandeur are doing what should be done and they know what they shouldn't do. One of the most striking examples is before our very eyes. It's Kazakhstan. Kazakhstan which ten years ago had half of Russia's per capita GDP, last year lagged only 3 percent behind us and this year look set to overtake us. Just a couple of days ago the President of Kazakhstan, Nursultan Nazarbayev, said in an interview with Izvestia: "Yes, from the results of the outgoing year of 2003, Kazakhstan is firmly in second place among the CIS countries in terms of wages and pensions. And in the year 2004 we will outstrip Russia."

Anchor: An ambitious task.

Illarionov: It is not a task, it is a fact. These are observable trends. And it is clear that they will do it. So, if we want to look back, this year we will have a growth of 6.5 or even 7 percent, that is good enough growth compared with the growth in 2002 or the crisis period that was engineered in this country in the 1990s. But compared with the growth in other countries, including our neighboring countries, this is not enough, it is too little. And if you bear in mind that growth is to a large extent the result of a favorable foreign economic situation and other countries are not beneficiaries of such a favorable foreign economic situation, then you come to see things in a different light. For example, Ukraine will most probably register a 8 percent growth of GDP this year and an industrial output growth of about 16 percent. But Ukraine does not produce oil. It does not extract or export it. It has to buy oil, including our oil, at higher prices. And yet --

Anchor: So, not a very glowing picture.

Illarionov: But at the same time we shouldn't be discouraged. Nor should we sit back and be complacent with the results that are not bad, but still very modest. We should have an adequate idea of what is happening around us. And we should take as our benchmark not what was happening the day before yesterday but look at what is happening in the world today, and will happen tomorrow and the day after tomorrow. And we should use these criteria and these goals. Then we will start achieving some results.

Anchor: Our guest was Andrei Illarionov, presidential adviser. Once again, a Happy New Year, Andrei Nikolayevich.

Illarionov: And I would like to wish a Happy New Year to our listeners and wish them all the best, prosperity, happiness to you and your close ones and your families.