Earlier this week, Russian President Vladimir Putin summoned his Council of Economic Advisors for the first time in two years; it was also the first time the Presidential Council had met since Alexei Kudrin, the former Finance Minister of Russia, came back to work for the government.
Kudrin proposed wide-ranging structural fixes during the meeting: law enforcement and criminal justice reforms, raising the retirement age to 63 years for both men and women, reducing the role of government in the economy, budget consolidation, public administration reform, and rebalancing budget outlays to favor spending on human capital and infrastructure. The key factor for longterm development, Kudrin said, is low and predictable inflation rate of about 3-4 percent annually.
Kudrin’s proposals clashed with the plans mooted by two other heavyweights on the Council: business ombudsman Boris Titov and Putin’s own adviser on economics Sergei Glaziev. The two proposed a targeted monetary expansion totaling 1.5 trillion rubles ($220 billion) per year. The sum would allegedly be spent on targeted loans to the private sector in order to stimulate growth in the real economy. Titov was pleased that his ideas had gotten a hearing. “We managed to present a break with a dogma that has existed for many years”, he said. For the first time, the group had “discussed alternatives”.
Kudrin is widely known and respected abroad as a liberal reformer, but his reputation in Russia is more checkered. He was instrumental in setting up a state sovereign wealth fund by setting aside billions of dollars during the fat years of high oil prices—a move seen as wise and prudent by most Western observers. But though the fund helped Russia weather the worst of the financial crisis of 2008, it has long been a temptation to cronyism. Sergei Aleksashenko, a former deputy chairman of the Central Bank of Russia, pointed out in 2010 that Kudrin himself had diverted funds to bail out a bank on whose advisory board he sat just as the crisis was hitting. And no money from the fund was ever spent on improving human capital or infrastructure.
Titov, for his part, ran a successful business before he was appointed as business ombudsman. And Glaziev, a full member of the Russian Academy of Sciences, is most well known for aggressive anti-American rhetoric, as well as for some heterodox pronouncements on the basic laws of economics. For example, a few years back, Glaziev threatened that Russian companies would simply default on all their outstanding foreign loans in response to Western sanctions. More recently, perhaps echoing the profound economic insights of Venezuela’s own economics minister, he proposed to fix the dollar’s exchange rate at 25 rubles (it is 66 rubles today) because this is the “real” rate.
Before the Council met, Kremlin Spokesman Dmitry Peskov said this would be more of a brainstorming session for new ideas and proposals, but that no final decisions would be made. After the meeting Peskov said Vladimir Putin “took into account all points of view and was satisfied.”
Kudrin, who was modern Russia’s longest-serving Finance Minister, from 2000-2011, was appointed a Deputy Chief of Presidential Economic Council in late April of this year. Rumors had been circulating in the press that he might have a shot at getting back his old position, or even that he might get tapped for Prime Minister. But neither outcome was likely. Becoming Finance Minister is out of question while Dmitri Medvedev heads the government, since it was Medvedev who fired Kudrin at the end of his term for publicly criticizing him. Their personal dynamic is said to be frosty, to put it mildly. And the Prime Ministership is impossible because Vladimir Putin would not do that to his loyal ally Medvedev. Why? Putin never turns his allies into his enemies, especially if they have a not insignificant level of support among liberal Russians. So Kudrin seemingly took the best option offered to him. (The top spot on the Presidential Council, alas, was also not available, as it is already occupied by the most sophisticated economist in all of Russia: Putin himself.)
Kudrin’s appointment is therefore a half-measure any way you look at it—Glaziev remains closer to Putin since he advises him directly. Nevertheless, it shows that Putin is keen on courting foreign investment, which he needs to help revive Russia’s moribund economy. But whatever liberal measures are in the end accepted, they can only go so far. His kleptocratic regime can only take so much transparency and reform.
Peskov indicated that Putin has not decided anything yet, and that further “brainstorming sessions” are ahead.