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Russia: Government Should Stick To Its Budget

Washington, 6 March 1997 (RFE/RL) - A former leading Russian government economic reformer says there is no sense trying to introduce advanced economic reforms if Moscow doesn't first learn to live within a budget.

Andrei Illarionov, who was chief economic advisor to the Russian Prime Minister in 1993-94, says the Russian government has actually done little to introduce real economic reforms in recent years.

But worse than that, says Illarionov, the Russian government has not adopted the first responsibility of any government to put forward an honest budget reflecting the country's true means and then sticking to it.

Illarionov, who is now director of the Institute of Economic Analysis in Moscow, is in the United States for a few weeks on a fellowship at Georgetown University. He spoke to a seminar Wednesday at the Center for Strategic and International Studies in Washington.

The most important advice Illarionov says he would give the Russian government is to honestly reassess the real duties of the government and what it can do under the circumstances, then produce a budget which it can "guarantee 120 percent" to follow.

If it doesn't do that, he says, then all the fancy reforms -- and huge loans from the International Monetary Fund (IMF) -- do no good for Russia. "They help the real estate market in the Bahamas and the Swiss Banking system, but not Russia," he said.

The government's practice of sequestering wages, pensions and some other expenses to keep the budget deficit below IMF agreed targets has been a disaster, he says, because it was not balanced, or even transparent.

"Some industries and ministries received a five percent reduction, some got a 55 percent reduction, but some others won a 55 percent increase," he said. That means that the Duma has "no real power to enforce the execution of the budget" it adopted and executive authorities still "do what they want to do."

That is not the way government should work in any country, including Russia, said Illarionov.

The economist, who was a part of Yegor Gaidar's first economic reform team in late 1991, says many of the reforms that have been introduced over the last few years in Russia amounted to nothing more than handing stolen government profits over to government and party insiders. "I'm not sure these are the kinds of reforms the government needs right now," he quipped.

The main target of economic reform must be to reduce the burden of government on the national economy, not increase it, he says. With or without market based reforms, he says, there will be no real progress until the Moscow leadership understands this basic precept of reducing the weight of the government on the national economy.

Ironically, he says, Stalin got it right after World War II when he dramatically reduced the cost of government to around 25 percent of the national economy, allowing the Soviet economy to grow.

But in the time since then, he says, the socialist version of the welfare state has gotten heavier and heavier until subsidies to industries, housing, and individual people are an "impossible burden to carry."

He says once the economy of Russia has begun sustained growth, which may take another 10 years, then the government can consider spending more. But certainly not until then. Illarionov says any Russian government must first live within its budget if it is to have any chance of success, he says.