MOSCOW, Jan. 11 (UPI) -- Economics Minister German Gref Tuesday was the second leading economic liberal to speak out against Kremlin economic policy against nationalization this month. "Our government is ineffective and state companies, as a result, are for the overwhelming part ineffective as well," said Gref, who also expressed concern about the recent destruction of oil giant Yukos.
Are Vladimir Putin's liberals in revolt? That depends on what you understand to be an uprising.
All is not well behind Kremlin walls. For months, many of Putin's economic liberals have publicly wondered where Russia's economy is going. Prime Minister Mikhail Fradkov receives his marching orders from the presidential administration, and then he passes on requirements to each ministry. Since Fradkov is primarily responsible for the economy, he inevitably imparts demands on individuals who know far more about economics and sound economic policy. Gref is one of those economists and he has a record of speaking his mind.
Gref is not the only liberal on Putin's team who is openly critical. Andrei Illarionov, special economic advisor to Putin, lost his post organizing Russia's position at the upcoming annual G8 meeting for ravaging Kremlin economic policy, the government's handling of the Yukos affair, and Russia's foreign policy. Is Gref following in Illarionov footsteps? Yes and no.
Criticizing Kremlin economic policy is what Gref, Illarionov and Minister of Finance Alexei Kudrin believe comes with their jobs. All three are highly respected within government and beyond. It is not their smarts that get them into trouble, though.
Since the start of Putin's second term in May, all have experienced a quiet and unofficial demotion. Before May, they were policymakers with a mandate to implement policy. Now they are primarily charged with policy implementation.
Illarionov has lost more influence than Gref and Kudrin and is left with just the position of thinking out loud. Putin's liberals don't like or feel comfortable in their new positions -- least of all Illarionov, who has long been marginalized from making of economic policy. This most likely explains his earlier criticism of over-all Kremlin policy. No stranger to controversy and public theatrics, Illarionov probably came to the conclusion he had little to lose. He was right; he still has his primary job as adviser to the president.
Gref's position is different and his reaction to events surrounding him less dramatic. What frustrates Gref most is being given orders that are either unrealistic or just plain inappropriate for Russia's economy at present. Since last May, Gref has openly challenged and disagreed with his boss Mikhail Fradkov on a number of issues.
Gref strongly believes that Russia's economy can only be modernized and stabilized through structural reforms. Fradkov is only interested in doubling Russia gross domestic product within a decade. Thus, the economist and the functionary have much to clash over.
How Russia's economy develops very much concerns Putin's liberals. The Kremlin's strategy to quickly expand the economy is through state intervention in the country's energy sectors. There is of course a political rationale for the state to control the country's natural resource base. Putin's liberals don't always agree. Instead, they would like to see less state intervention in the economy and more structural reforms. This is why Putin's liberals and the rest of government are at odds over the Yukos affair.
Gref, who sits on the board of natural gas giant Gazprom, has long opposed greater state involvement in Russia's energy sectors. The forced breakup of Yukos, auction of its primarily production unit Yuganskneftegaz, and integration into state-control Rosneft Oil Co. stand in stark contradiction to what Gref believes to be sound economic policy. Illarionov holds many of the same convictions, calling the breakup of Yukos a government "swindle."
Gref did not use the same kind of language to describe the breakup of Yukos, but he did tell Kommersant business daily Tuesday, "I think that Rosneft and Yuganskneftegaz, should it become a state-owned company, must be privatized."
From a purely theoretical position, most of Putin's liberals think that gross state intervention in the economy is no longer necessary, including the creation of a mega energy company comprising of Gazprom, Rosneft and Yuganskneftegaz. Of course, the privatization of the energy sectors were dubious or even illegal during the 1990s, but they would argue Russian oil companies are now in a position to pay back taxes -- even as large as $28 billion tax bill delivered to Yukos. These companies only need a reasonable timetable to honor past tax obligations.
The Kremlin has no interest in theoretical arguments, even from the smartest of Putin's liberals after a major political priority has been made state policy.
Have the economic liberals had their day? Not at all. Illarionov is no longer a Kremlin insider, but Putin will probably continue to welcome his blunt observations and criticisms as an outsider. Gref should be expected to stay in his position. Putin has been long accustomed to Gref's criticisms. This is most likely why Putin has repeatedly supported Gref of over the past few years.
Putin liberals are not really revolting; they are doing what Putin has always asked them to do -- speaking their mind. Most of the people surrounding Putin would never say a bad word in public about their boss or his policies. Putin appreciates this kind of loyalty, but he probably respects his economic liberals more than anyone close to him behind Kremlin walls.
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(Peter Lavelle is an independent Moscow-based analyst and the author of Untimely Thoughts, an electronic newsletter on Russia at untimely-thoughts.com.)
