Economic and Political State of Russia

January 29, 2001

Moderator: Anders Åslund, Senior Associate, Carnegie Endowment

TRANSCRIPT:

MR. ANDERS ÅSLUND: Ladies and gentlemen, my name is Anders Åslund. I am a senior associate here at the Carnegie Endowment. And it's a great pleasure to introduce to you today one of the great reformers of the last century, Yegor Gaidar. He is the man who is responsible for Russia today being a market economy. And it's a great pleasure to organize meetings like this. Each year when we have the honor of seeing Yegor Gaidar here, we invite fewer and fewer people, and we get more and more people coming, which is why we had to set it up like this today. So I apologize for not having tables as we normally have. But this is very much showing former Prime Minister Yegor Gaidar's enormous popularity here in Washington, and rightly so.

I should mention that Professor Gaidar is director of the Institute for the Economy in Transition, which just celebrated its 10th anniversary at a wonderful conference, at which several of us participated last December. He is the author of many books, and one we had a presentation of, Days of Defeat and Victory, almost exactly a year ago. I would like to still remind you of it, which is an excellent memoir about the radical reform in Russia. And he's also the co-chairman of the Union of Right Forces, the strong, right-wing, liberal or conservative party in Russia today. And he is also a deputy of the State Duma.

But most of all today, Dr. Gaidar is one of the preeminent observers of the Moscow scene, a person who both knows and understands what's going on in Russia and can explain it in outstanding fashion.

So our questions to you today, Yegor Timurovich, that is, where is Russia going? In particular, how illiberal is really Mr. Putin? How are we to interpret his actions on NTV? Today we heard the journalists are good, but the management is bad, or is it the government that is bad? Andrei Illarionov, the economic adviser of the president, has recently complained that reforms have been stalled in Russia. At the same time, we are seeing the growth last year of 7.6 percent, which is quite an achievement. What is the most important thing that's going on in the continent?

And then, you are a co-chairman of an important party. Where is the Union of Right Forces going? Is it becoming a fully-fledged party and not only a parliamentary party? And are you united fully with Yabloko?

With these few introductory words, I leave the floor to you.

(Applause.)

MR. YEGOR GAIDAR: Thank you.

Well, friends, it's my privilege to address this audience. And I can remember that we had a chance to discuss Russian developments approximately one year ago. And then everybody was interested in one simple question: Who is Mr. Putin? (Laughter.) But frankly, I'm a little bit bored by answering the question. (Laughter.) So I would try to -- it's impossible to avoid it entirely, but I will try to minimize the amount of misrepeated problems and try, first of all, to concentrate on what happens generally in Russian society and Russian politics.

I will try to answer three questions, which Anders underlined. But first of all, I would like to read a speech, which from my point of view, were the most political developments in Russia.

In Russia last year, we evidently had very serious political stabilization. So we left the period of long-term political and economic instability which followed the collapse of the totalitarian system of the Soviet Union. The period which usually, after any so radical social and political change is very painful, is a period of that serious political clash in the society, absence of the consensus of the basic values, unstable governments, unstable finance, unprotected property rights, poorly functioning state.

Usually this period follows any big revolution. Usually societies start to be tired from this period of weakness of the state and instability. Usually society wants, at some stage, some level of law and order. Usually, a society would like to have a stronger state and then this is being delivered. And that's what happened in Russia in 1990.

When and if you have this period, inevitably the stronger government and stronger state have new abilities which were absent during the previous period. During the last period of Yeltsin, we discussed, more or less, all of the reforms which are now being, almost being implemented just during the year '91. The major part of the documents were elaborated at that time. Everything was in the center of the discussion, but nothing was possible to do.

Now, the new president, who does not have the responsibility for the past, who has a high-level of popularity, which is a reality, and has the support in the Duma, can address all of these problems, and that is a long standard. But also with this you get an enormous risk, risk connected with the fact that society is starved of the absence of law and order. He would like to have a strong government. He would like to have a strong government in a society, which does not have a few centuries' tradition of democracy, in which democracy is extremely young.

So, well, even if the state is extremely weak, then it could not greet the dangers of the various types of liberties and the democratic institution. When it straightens the situation in this century, then you are confronted with serious dangers that the evolution will go in a direction, which undermines the reality of the democratic institutions. And you will not need to introduce the martial law police, we have seen by the experience of that -- many of our neighbor countries. By a few very simple solutions in the media and general prosecutor office, et cetera, you are polarizing the democracy to the extent in which it doesn't function as a democracy. All this stays -- formerly democratic institutions stay, but everywhere you understand that it's a joke and it doesn't function. So both of the possibilities and the dangers were evident at the start of the Putin era.

So what can we tell about both of these possibilities and the dangers and the round of our experience of last approximately seven months of Putin presidency and the Putin government? Of course, before May, everything was connected with the elections and we could not speak seriously about importance. Practically, the Russian politics of the Putin era started somewhere around middle May when the new government was formed.

I will start with the economic part of Anders' question because it's easier for me and then I will follow with the political part. Well, in the economy, I do not agree with Andrei Illarionov that reform agenda of the year 2000, in economic view, was weak and was not fulfilled. I think that on all of the realistic expectations, the government was able to choose a few quite important priorities and to give them very important results; one being the tax reform. And as you do understand in any society, it's extremely difficult to push a radical tax reform. I will not really elaborate on the elements of the tax reform, but it was radical and it was serious.

Second was serious strengthening of the federal government possibilities to control the situation in the regions, including the implementation of the rule of the federal law in the regions.

Third was serious redistribution of the revenue sources from regional budgets to federal budgets, which makes the Russian state much more financially sustainable, especially taking into mind the financial obligations of the debt servicing, et cetera.

Fourth was serious lowering and unification of the custom tariffs. Not as radical as I would prefer, but still an important step in this direction.

And last but not least, the decision of the government to cut down the number of the military by 600,000 persons during three years. This was discussed during the years, under the previous regime, what nobody would like to touch, Putin was able to touch the subject and to create a general consensus between the military institutions.

All of these, from my point of view, are extremely important points. Why the sense of disappointment in speaking about the economic policy? Well, it's evident, during all of this year we accumulated enormous amount of the problems in the economy, and we can tell, well, what? The problems of the banking reforms were not even touched. Nothing was done on the land legislation until last week. The protection of the property rights is still extremely weak. Well, and the patent reform -- nothing is in legislation -- et cetera, et cetera, we could follow this list very intensely. But then, from my point, it fuses enormous tension because as in any young, but real democracy, you cannot address all the things simultaneously. And that is part of my discussion with my friends in the government. Part of them being very energetic and younger, think that they could address 28 different problems simultaneously. But then usually you just got nowhere.

Yes, Putin has a lot of support in the parliament and has a lot of possibilities. But it doesn't mean that he can put and push in the parliament some complicated legislation just because he supports it. I do not really want to go into details, but I could tell you a long and sad story how difficult it was to create the coalition behind tax reform, how difficult it was to hold this coalition during all of this ferment, and we had to deal with the problem of confrontation with the Communist trade unions and the regional lobby, which is extremely strong.

So each time it is an extremely complicated matter. If any American president would try to resolve 30 or 28 important reforms and push them through the parliament here, you'd understand what's involved. And that is more or less -- more or less, with all the differences, the same in Russia.

So now I think, on the current policy, we see a few important problems. First, this evident slowdown of the reform momentum during the last November. The government had a very energetic start -- from my point of view, sometimes too energetic, but -- and then it was evident that the energy somehow [tapered off].

The second problem is that the government is undecided what are seriously the priorities for the year 2001. I do understand that it's -- well, they have a splendid program. The great program's splendid. The problem is that there are 28 important reforms for this year in this program, and I can assure you 100 percent that if it would stay for 88 percent, at the end of this year, when we'll be, I hope, meeting next year, the result will be extremely disappointing, resulting in no progress on the majority of the bills. So they have to choose their priorities. Difficult problem. I'm very much uncomfortable in answering the questions what should be the three priorities for next year in Russia. I have some feelings about this, but they're open to questions. But they somehow have to resolve what are the three -- maximum, four -- priorities around which they will have to concentrate. Other way round it will be wasted.

And the third point, well, the government, from my point of view, was not bad in keeping the reform momentum in the very difficult movement of the high oil prices, because high oil prices is a nice moment in all Russia, but a bad moment for reforms. They are not pushed. Everything is so nice.

Until now the government was more or less able to be in a framework for the reform agenda and a more or less tight budget, even in the presence of the high oil ratings. But it's not easy to withstand the pressures. It's easy to be tough when everybody knows that you don't have money. It's difficult to be tough when everybody knows that you have money and you are sitting on this money from all sides, and from the Paris Club to the social pressures. And it is not easy, and they think that for Russia there is such a thing as optimal upper and lower oil prices. I don't think that very high oil prices are very helpful for Russia in the long-term perspective. So for how long the government will be able to satisfy?

So, from my point of view, on economic policy, if you are reasonable in expectations, then up till now the results are satisfactory, and I hope that they will be able to continue at a speed, which will be a little bit lower than last year, but still rather energetic, to continue these efforts.

First, speaking about the economic growth [last] year, there are internal discussions of what are the sources behind this economic growth. And there are usually two points. One is that it is all high oil prices, and the second, that it is reforms which are implemented by the government. From my point of view, high oil prices, at least it's our estimations, are explaining approximately 50 percent of the growth, 35 percent directly and another 15 through the indirect mechanisms. So if we will exclude [oil prices], it [economic growth] would not be 7.7, but closer to 4 percent. And it is, to a very modest extent, connected with the president's reforms because they haven't yet started to influence the situation in the year 2001.

First of all, this economic growth is based on the fact that in Russia, with all of its problems, we're able to form the critical mass of the decently managed enterprises, which prefer to operate more or less efficiently under the market conditions. Enormous overconcentration of the attention on the big, poorly managed Russian enterprises, like Gazprom, prevented many observers from seeing the very serious changes in the Russian enterprise sector, on especially the medium-sized companies. A substantial part of them is now more or less properly managed. We needed a lot of time, much more than Poland to do it, because the distortions were higher, the level of skews lower, et cetera. But that is really behind this growth. And it doesn't mean that this growth is sustainable. We have seen examples of unsustained economic growth after socialism, when, after the slow growth, we once again had a slowdown. We need a lot of these reforms to make this growth sustained. But I think that that is essentially the source of this growth.

Political center. Well, as probably some of you who were here last year remember, I had rather low expectations about the commitment of the new Russian leadership to the democratic liberties. And I think that everything was more or less on the level of my rather low expectations. (Laughter.) Not that anything drastic happened, not that we can tell "Well, democracy doesn't exist anymore in Russia," et cetera. It is not true. But a very serious increase of the role of the so-called "mock power structures" and secret service, appearance of the various types of strange documents, like the adoption of the National Information Security [doctrine], selective pressures on the various press groups, all this shows that the new Russian leadership at least is not very much decided on the issue that democracy is necessary for Russia.

And here is the serious source of danger, because really the basis of civilization is that Russian society and Russian elites accept the market and private property. It is not a matter disputed anymore. No serious political party would run with a slogan for dismantling markets and building socialism. Out of the question. The democratic institutions and the freedoms are not as well established and accepted by the Russian elites and the Russian society.

Sometimes in open air, most often behind the closed doors, we can see a lot of discussions in Russia, and it is more interesting here in the West, which goes more or less on the same lines. Well, you see, of course, Russia is not mature for a democracy, so we, of course, need now to promote the economic reforms, to create the growing market economy, and then, of course, to push all these freedoms from our sight. And then, after all these will work, then slowly, in an organized way to introduce all of these democratic freedoms. Well, you see how nice it is with the Chinese, how many times it was told that the Chinese partners -- so why don't they use it? Strong authoritarian control, pro-market economic policy, and then sometimes later, democratization.

Well, from my point of view, this position is a very serious mistake and it's extremely serious because Russia paid a very high price to create democracy in our country, and I think, that with all imperfectness, we now have for first time in Russian history nine years of democratic developments, an enormous achievement. You cannot find any perfect young democracies, especially in Russia, and you should not think that next time we will try, it will be easier. But if and when we paid so high price for the creation of the institutions, which are extremely important to adapt to the realities of the 21st century, because we are not in the 18th century, we are not introducing the Great Reforms, we are in the 21st century when the democratic institutions are still most adaptable [even] with all these problems. To dismantle them is extremely dangerous.

So I think that the story of why move for economic reforms and for political reforms isn't finished in Russia, it's absolutely totally, "well, everything is done, now we see that Russia cannot be a democracy; let's wait until the next chance." It is not the position of very many people in Russia; it's not our position. I think that we should and we will try to keep and to develop Russian democratic institutions, but we should not take them from the program. It is on the first question.

The third problem is connected to the previous, you know, the Right Forces and what will we do? Well, we are -- we decided to form a broad, liberal, in European sense, political structure as a party, which will substitute for the eight, nine different organizations which bring the form of the coalition of Union of Right Forces, which participated in the previous elections. We will do it at the congress, which will be held on the 26th of May. We decided that we will dissolve all of the previous organizations because other way around and regrettably we'll have internal clashes, and we would like to have a strong, united party. We decided what would be our ideological goals, and what will be our position to the president and the government.

The essence of our position to the president and the government is that we are supporting the president and the government when they are implementing our program, but we are absolutely against any authoritarian tendencies and we are prepared to alter that position if these authoritarian tendencies continue. The essence of our ideological program is that we would like to see Russia as a Western country; a country with Russian culture, but with Western institutions, and the hope, our hope, is to create the necessary preconditions for the possibility to do it in Russia.

I hope that we will be able to create a strong political party in our view, and then be able to influence the political process. Because a lot depends, based on the presidency and a strong pro-presidential political center in the middle in Russia, it all depends on the balance -- on how strong are the Communists, how strong are the liberals. If the liberals are weak, the Communists are strong, then inevitably the president is pushed in their direction. If the liberals are strong, the possibility of the outcome is quite different.

Our relationship with Yabloko, they are better than they were during all the period of the transition. We are intensively cooperating in Duma; practically, we are working as a single parliamentary group, with a joint position on practically all of the important issues. We should, of course, seriously increase our possibility to implement the developments. We are intensively cooperating in the regions on regional elections.

We are in the process of discussion of how to proceed with this unification. There are two possibilities which I'll discuss. One is to include Yabloko in this new political party which is supported by some of the Yabloko leadership. Another is to create the election bloc with Yabloko before the next parliamentary elections. Although both of these options are possible, we are open for discussion. I think that the fact that we are cooperating intensively is a very important factor which helps us to fight for our ideological goals.

Well, dear friends, probably I will stop here and, of course, I will be very glad to answer your questions. Thank you.

(Applause.)

MR. ÅSLUND: The floor is open. Please.

QUESTION: How much of a drain does the Chechen War continue to be on the Russian economy and on the Russian defense budget?

MR. ÅSLUND: Thank you.

MR. GAIDAR: Well, it's a difficult question to answer, because Chechen expenditures are divided between the various subsegments of the general government budget. And it is more or less impossible to combine all this together. On the early social programs, investment programs in the budget for the year 2001, we allocated 4.5 billion -- billion rubles, of course -- which is not extremely high. It is 0.3 percentage points of federal budget.

Of course, if you include all of the military expenditures, it will be higher, but still macroeconomically now, it is not extremely important, right? Especially taking in mind that the solutions to withdraw part of the military in Chechnya must stay, it is much more important politically than economically, because to have even the medium-sized [force] and a minimum of partisan warfare inevitably influences society, inevitably pushes higher the influence of the various types of security services, et cetera.

QUESTION: Could you say how much the Chechen war might serve to block military reform and military streamlining?

MR. GAIDAR: I don't think so. We -- well, practically, from my point of view -- you'll be surprised, but I think that the Chechen war will push in the direction of the military [reform], because it was so evident that the old Soviets' military structure is absolutely unadapted to the real security problems. It's unable to fulfill all its functions. All of this military organization created some times ago to fight the big war in Europe is so much unadjusted to real peace, so that it was impossible any more to defend the issue that we do not need any military reform. And if we made serious cuts in the number of the units, general-level positions, formational, the fully equipped and fully staffed regional brigades and divisions, et cetera, all of this was to a very serious extent influenced by the first Chechen war.

MR. ÅSLUND: Thank you. Andrew Kuchins, Carnegie Endowment.

MR. ANDREW KUCHINS: Thank you very much, Dr. Gaidar, for your illuminating presentation. Just a couple of quick questions related to the first portion of your talk on economics.

First of all, it's been reported that capital flight in the last year grew about 25 or 30 percent, approximately, in Russia. I was wondering what you would attribute that growth in capital flight in the last year to, to the extent that we can measure it accurately.

And secondly, certainly one of the major issues on the policy agenda is Russia's foreign debt, particularly to the Paris Club, and debt restructuring. And there seems to be some disagreement or at least fermented discussion in the Russian government about this issue. I was wondering if you could comment about that and how you see this being resolved.

Thanks.

MR. GAIDAR: Well, capital flight. Here the unpleasant thing is that all of the statistics necessary to calculate the capital flight are extremely unreliable. There are varied details I could not go [into]. For instance, we in our institute put a lot of efforts to try to estimate in a way in which we ourselves believe that [capture] capital flight, and up till now we're unable to do it. So everybody understands that the capital flight is huge.

But to understand, well, it increased 10 percent or decreased 10 percent, you have to believe in Russian foreign trade statistics -- (laughter) -- which might be more than anybody who knows anything about this would believe. So I really do not comment. It's still a very, very important problem.

Of course, there was a very positive development last year in the statistics, which is better than the capital flight, and that is investment statistics. We had the increase of investments in fixed capital in Russia by approximately 80 percent last year, which shows at least some changes of the priorities of Russian businesses, and which is extremely positive and will create some grounds for hope that the economic growth will be sustained. But I really do not know exactly what were the dynamics of it.

On the Paris Club. Well, it's a long and complicated story. First of all, I think that the government made a mistake when it started to elaborate the strategy for the budget for the year 2001 and the passage of the budget in the Duma. The argument of the government was thought without sense. Well, we are evidently making very conservative estimations of the revenues, but also, we are including in the sources of the financing some sources that couldn't exist. Paris Club restructuring, IMF loan, for instance. Then, if they will not appeal, then we will have additional revenues from which we will cover these obligations, all of them.

Well, then the budget was passed, as usual with the compromises about how the additional revenues should be spent, and then we were confronted with the fact that with so high oil prices and so positive trade balance, it's extremely difficult to pursue the part of the Paris Club [debt] that we need to restructure.

And then it was intense public debate, of which a special present was that it was public, because your authorities could have one point of view on the Paris Club, another point of view on the Paris Club, but you can't have two different points of view on the Paris Club. And the first point was that, well, we will not cover the principle, we'll cover the interest, and we will be in discussion with the Paris Club about what to do on this. Another position was that we have to tell that, well, we will pay everything, we will not need any restructuring, Russia will fulfill all its obligations.

Well, after this discussion, generally it was the joint position elaborated on the meeting in Putin's office a week before -- Friday of the previous week -- essentially the result of this was that, well, we will not do anything unilaterally. We will not eliminate arrears. We will be in discussions with the IMF and the Paris Club, first of all about what to do with the problems of the year 2002, 2003, which is a reasonable approach, from my point of view. Inevitably, when you have a so complicated issue, and all of the Russian financial officials are being asked the same questions, even when they were told very strictly not to express different opinions, inevitably you could find some small differences, et cetera, but generally that is, from my point of view, the position.

MR. ÅSLUND: Tom Bjorkman, the Brookings Institution.

MR. TOM BJORKMAN: Thank you. And thank you for your comments today. My question goes back to your comment that it's clear you have a conviction that further development of democratic institutions is possible in this environment. And you indicated that -- in your view, that it depended a lot on whether Mr. Putin and the administration were pulled to the left or pulled to the right, and how strong the right can be built up as we look forward into the future. I'm just very interested in your thoughts on how the liberal parties, the parties of the right, can grow and develop in order to pull the Putin administration to the right and not the left?

Thank you.

MR. GAIDAR: Well, you know, to organize the democrats, especially to organize the democrats in Russia, is one of the most difficult jobs I have heard of in the world. (Laughter.) Well, we had 50, nation-wide, register for democratic organization in our country. Plus the majority of them were not organizations at all.

But to create a really functioning organization, which does not exist only in Moscow and St. Petersburg, but which goes to the big cities, then to the smaller cities, then to the countryside, you need a lot of time and effort. The problem with the Russian democratic opposition was that it just was formed as a broad, poorly-organized anti-Communist coalition which helped to bring the Socialists down. Then all of the real problems are not finished, they are just started. And then to keep this broad and fully organized movement is important. Then you have to start building these more organized political institutions.

I think that the organization of the Union of Right Forces is even now much stronger than the Russian democratic organizations have ever been in this country. And the general development is positive. The fact that we are going from these inevitably broad coalitions when you have to negotiate with all the partners, is a problem simply of democratic infrastructure, is very positive. Then, of course, a lot of work will be necessary to spread our influence outside of just big cities, because usually our problems -- well, in big cities, our positions even now are quite [well known.]

The problem is that we are extremely weak in the small cities and practically absent in the countryside. We'll be able to penetrate at least small cities, it will be extremely important for this.

MR. ÅSLUND: Michael McFaul, Carnegie Endowment.

MR. MICHAEL MCFAUL: Yegor Timurovich, you talked about that right now Mr. Putin and his government are indifferent to democracy, they're not really concerned with it, but you don't see them with a pro-authoritarian policy right now. What happens if they decide to adopt a pro-authoritarian policy? What are the barriers to backsliding? What are the institutions and actors that might stop it? And I would ask you to be comparative because on the economic front, when we had new prime ministers, say, Mr. Primakov, when he came along, the costs of doing the wrong thing were very clear, and I think clear to him and clear to outsiders. It's not clear to me what the costs are to Mr. Putin for going against democratic institutions. And maybe could you say a little bit about the role of the West, if something like that should happen?

MR. GAIDAR: Russian society adopted the markets. Whenever Primakov's government was doing something that society regarded as dangerous to the market, there was an evident and very strong reaction. I hope the reaction of the society in the political field will be very strong, but I am not absolutely sure.

Of course, still we have a functioning parliament. A major part of the society is accustomed to having elections which more or less are free, and accustomed to having press which is more or less free. Really, society will not be happy, even if -- well, as you know, our sociological polls -- if you were to ask them, well, "whether you would like to have a stronger, -- more law and order and stronger government," the answer will be "yes." Maybe what we will say is: "For doing this, you will have to undermine a little bit democratic institutions." "Well, we can live with a bit." What do we mean by that? Absence of freedom of press? No, no, no. Absence of the free elections? No, no, no. Absence of the right on strikes or demonstrations? No, no, no. So, generally, it is in the society, but the problem is how well we will be able to organize the resistance to these type of events. And, of course, I think that here the role of the West could be quite important.

I do not think it's very practical when the West is trying to interfere in the small details of the Russian internal politics. It's inflation of the possibilities, it's rather harmful than helpful. But I think it is important for our political elite to understand that the possibility of the normal membership in the club of the developed market economies very seriously depends on whether Russia stays a democracy.

MR. ÅSLUND: I had a question down there. No?

(QUESTIONER): It was asked.

MR. ÅSLUND: Okay, fine. Then I have Dana Marshall.

MR. DANA MARSHALL: My question relates to the Caspian and the oil equation there. You mentioned oil prices being where they are now. I wonder if you could comment a little bit on the nexus between the oil prices and perhaps the political forces associated with Putin that are interested in that area. In what direction do you think the policy may be going, and the effect of the new American administration coming in, on all of that cluster of issues?

MR. GAIDAR: Well, I do not expect any serious or radical changes in the position of the Russian administration toward the Caspian region and Transcaucasian. We are interested in keeping the influence in these regions. It's in our national interests. We, as any other country, have them. We will defend -- any sensible Russian administration [will defend it]. I hope that it will be done in a civilized way without the creation of a potential conflict of the regions for the world stability, but of course any sensible Russian administration would care about the Caspian region.

MR. ÅSLUND: Keith Bush with CSIS.

MR. KEITH BUSH: Dr. Gaidar, how do you see the Russian economy developing over the next five to 10 years? The Gref Program, the last version I've seen, suggested it could grow at least at 5 percent a year. Do you agree? And a related question, has the Gref Program of reforms been put on ice? I'm talking about the banking sector, the monopolies and so forth.

MR. GAIDAR: Well, the problem is that nobody knows how to forecast long-term growth for the Russian economy. (Laughter.) And it is not by the lack of trying, despite the lack of the statistical data necessary for the real answer for this question.

I could elaborate on this, but I think it's more or less evident. So we're going to see this extend; everything we are now discussing about the potential rates of the growth of Russia is very serious guesswork. We are looking at other poor socialist countries which started to grow. We are trying to find the factors which influenced the growth there. We are creating some hopes, but we are, as an institute, are very cautious in any kind of long-term forecasts of Russian economic growth, because we cannot defend them in the serious professional community. So to some extent, it's hopes. It is quite possible that these hopes will be met, even it is possible that they will be over-fulfilled, but it's not more than hopes.

About whether the Gref program was put on ice, it is not the fact. The problem is that they are really confronting enormous demand of problems and challenges, and to some extent it is over both the political and analytic capacity to get the progress long-term. I don't mention the banking sector. Here the situation is quite evident. You cannot impose the reforms on any serious institution. You cannot impose the reforms on the government, you cannot impose reforms on the central bank if the central bank does not want to proceed with the reforms in the banking sector. And if and when the central bank is not committed to the reforms, we will not have reforms until we have [a change in] leadership of the central bank.

On other fronts, the problem of this government is mostly that they are trying to move in all the directions simultaneously. And they, from my point of view, are unable, after they achieve this redistribution of their budgetary revenues and the first stage of the tax reform, to decide for themselves what we will do in the year 2001.

MR. ÅSLUND: John Hardt, Congressional Research Service.

MR. JOHN HARDT: On the same subject, economics, you mentioned that you could not simultaneously do all things at the same time, and indicated you had thought about that but that you weren't going to indicate what you thought the priorities were. And I wonder if you would spell out some of the priorities that you think are either feasible, because you suggested banking is important but very difficult, or manageable from the standpoint of a coalition. What do you think is important, to figure out what's politically possible and move on that, and which direction would you move; and what is economically necessary and move on that? And what's your thinking on that?

MR. GAIDAR: As I mentioned, it's very uncomfortable to express this view, because really it's a difficult choice. I think probably I would put the strengthening of the protection of the property rights, including the land courts and the changes in the legislation on the joint stock companies protecting the minority shareholders' rights, as a top priority. And I would like to try to concentrate on these as priorities for next year.

I would put the implementation of the tax reform -- because important element of the system is there, but a lot of extremely important elements, including the profit tax, are not there yet -- as a next, extremely important priority. And probably I would put the regulation and the necessary changes in legislation connected with regulation as a third priority, if you would like to ask me the three priorities.

Of course, that will leave extremely important issues. One you mentioned, banking reform, which probably should be on a very, very short list, but I'm not very much optimistic about the possibilities to push it strongly during this year with the present tradition of the central bank.

I am not mentioning the social protection reform, which is extremely important for Russia, on which the government has very serious and strong proposals, and which also I would put very high on the priorities. But when the Kremlin had a deal with the Communists about the composition of the Duma last year -- and we discussed it when we met last year -- I told them that it was a very pragmatic move, but with long-term consequences.

And now we are confronted with long-term consequences. Communists are controlling all the social committees in the Duma -- education, health care, and social. And it's extremely difficult to push the legislation, even if you control the Duma majority, if you are not controlling the main committee. So from this point, these are extremely important issues. So probably trying to combine what is extremely important and possible, I would choose these three as the priorities.

MR. ÅSLUND: Harley Balzer, Georgetown University.

MR. HARLEY BALZER: Yegor Timurovich, I was struck by what you said about this vision of a Russia -- of a country with a Russian culture and Western institutions, and I'm wondering what role international institutions might play in your thinking about this.

One of the things that Russia has not done is make any progress, for instance, in WTO membership, although in December President Putin did say it was a priority. And in a situation where there are concerns about a more authoritarian regime, you might think that the international institutions would be something of a guarantee for the democrats of holding to the course of economic democratization.

MR. ÅSLUND: May I add the European Union and the Council of Europe?

MR. GAIDAR: The WTO is, well, also from the set of the priorities, which are extremely important and difficult to ignore. If you are speaking about foreign policy and foreign international policy, of course the WTO is the single most important issue for Russia.

The problem with the WTO is not the lack of political will. [Putin] strongly supports the idea of early membership in the WTO, and he made it one of the priorities. The problem with the WTO is this extremely complicated technical issue. You need a lot of things prepared, deliberated through the bureaucracy, then adopted by the Duma, et cetera. Generally, the government now has the possibility of pushing it, but it is extremely complicated.

Well, now one of the most important documents we are discussing for the year 2001 is a new customs court, because the present custom court is absolutely incompatible with anything connected with the WTO. And half of the [last] year was spent in difficult discussions, between our Russian Custom Office and the Ministry of Economy, on which type of court it should be. Now we are in the center of the discussion. And next week, when I am back in Moscow, we'll have the meeting on this issue.

Then we do not only have to elaborate the governmental position, we have to push it through the Duma. And so we have a qualified person, the deputy minister of trade, Mr. Medvedkov, now in charge of it. He's trying to move in the right direction. At last, the necessary documents were finally prepared for the negotiations. That is also one of the issues, you have to choose the priority. I think that WTO should be in a very high place on this list.

Generally, whether the membership in this type of organization would be helpful, I think yes. It is, of course, that does not guarantee you anything. China, in a short period of time, will be a member of the WTO, but it does not make China a democratic country. There are many other countries which are not democratic so far, still they're members. I think that mostly, of course, in very general terms, it's a case which concerns strongly the international community. First of all, concerning Russia, I don't think that the international institutions could play extremely serious role in defining the part of our role.

The European Union, well, the Swedish government, which is now chairing the European Union, started with a very energetic and ambitious program, targeted with deliberation of the developments between Russia and EU, which from my point of view, includes very important and sensible priorities. I hope very much that we will move in this direction.

MR. ÅSLUND: And the Council of Europe?

MR. GAIDAR: The Council of Europe, I would not overestimate the influence of the Council of Europe.

(Laughter.)

MR. ÅSLUND: Julie Corwin, Radio Liberty.

MS. JULIE CORWIN: Hi. You mentioned earlier that the government only recently submitted legislation that would regulate the buying and selling of land, but it left out any treatment of the buying and selling of agricultural land. Why do you think it did that? Presumably it's postponing a fight over this issue, but what is the advantage of a postponement?

MR. GAIDAR: Well, it is the political choice. Our position all the time is evident. We wanted to get the legislation which includes both agricultural and non-agricultural land in a more naturalized style of land. I think it's possible, if the government, especially the presidency, was strongly committed; I think it is possible to push it through Duma. Of course, the fact that we are able to adopt the introduction of the 17th Chapter in the land court last week is a very positive step.

You know, it is a political choice. Either you are going to have very direct confrontations with the Communists, together with the liberals, like you have done with the tax court, or you prefer to keep some kind of balance and flexibility. The president preferred to keep balance and flexibility, and really it is his style; he likes to be flexible. But I have a feeling that after the fight of the budget and the tax court, in which the government, the presidency, were close to the liberals and very distant from the Communists, Putin just wanted to establish balance, showing that he has more possibilities, if necessary, making alliance on the right or on the left.

MR. ÅSLUND: Sarah Carey?

MS. SARAH CAREY: Dr. Gaidar, could you comment on where on the list of the government's 28 priorities the reform of the national monopolies fits, the railroads, Gazprom and UES [Unified Energy Systems], and whether the recent experience in California is dampening enthusiasm for it?

(Laughter.)

MR. GAIDAR: Well, the government discusses the reform of national monopolies as one of the priorities. I'll tell you frankly, in all of the three different national monopolies which are under consideration -- railroads, electricity and Gazprom -- there are things that should be done to change the situation. In general, I think that we need reforms in national monopolies. First of all, we need a very simple reform, we need serious improvement of the management of Gazprom. That is the most radical reform in the sector of national monopolies that we would like to have, with clear financial balances, with a clear relationship with subsidiaries, et cetera -- division between the transportation and productions.

Electricity -- enormous debate. Tax shelter interests, regional interests, shareholders, et cetera. No final decisions will be made until probably April.

So, railroad. The good news is the railroad ministry now is enthusiastic about reforms. The bad news is, of course, that it would like to pull the reforms which will be beneficial only to the railroad ministry.

So I think that reforms of the national monopolies is difficult, complicated and time-consuming issue. It's not even like creating the coalition to support the tax reform. It needs years to elaborate it, to implement it, et cetera. I hope that we will have some positive movements in the reforms of the national monopolies during next two, three or four years. I do not expect anything extremely serious, anything which really radically changes the situation, except the change of the management of the Gazprom during the year 2001.

MR. ÅSLUND: David Ensor, CNN.

MR. DAVID ENSOR: What do you think the government's intentions are towards NTV, and how seriously do democrats like yourself view the threat, if you see a threat?

MR. GAIDAR: Well, first of all, it is not a constitutional issue, mostly, not the problems of the government, the problems of the president, organization and administration. To a serious extent, the government is not strongly involved in the issue.

What are the intentions of the presidency toward NTV? I don't know. As you know, probably, today the president met with the fourteen journalists of NTV. And all of the things that he said were right; that he cannot reestablish the telephone rule in the general prosecutor office, that he cannot interfere in the financial business of the companies, that the company should pay its debt and it's not a matter of freedom of press. So his position was very strong and unpenetrable, if especially everybody in Russia would really believe that all of the story of the NTV is about the financial problems.

(Laughter.)

The problem is that the vast majority of the Russians do not believe this. Now, of course, NTV and Media-Most were the part of the old oligarchic structures of the Yeltsin period. Of course, they could not survive without the very huge amount of financing -- by various means extracted from the state or across the state institutions. Of course, it couldn't survive in the new age. But if the Kremlin would very clearly express one single position and that is -- well, of course, this oligarchic structure could not survive, but we are very much interested in having strong control over big international information agency with a good reputation. Then everything can be clear and they will understand that it's about finances.

But the message from the Kremlin is very much mixed. And whether they really would like to move in this direction, or it is just the words and they would like to have a third state controlled channel, it's unclear. And the second option is a very serious danger. So that's why we are all the time defending NTV; not because we are so right in response to the skepticism for it, but because we really think that it is impossible to divide financial problems and the freedom of press.

MR. ÅSLUND: Arthur Hartman, APCO.

MR. ARTHUR HARTMAN: We've talked in the past about training and bringing on a new generation. Are you satisfied with the people that are coming out of Russian institutions now to lead this new economy and new democracy? Is there anything we should be doing in the West to aid that process?

MR. GAIDAR: Well, first of all, of course, there is enormous improvement of the quality of the management in the Russian companies during last year - [than the] previous eight years. Of course, the starting point was terrible, because all of the management -- a quite important part of the downfall of the production in Russia was connected first of all with the inability of the old management to adapt to the new realities. Because you cannot import new management in Russia just because you need it in one year period of time, and the old management is not very much prepared to say, "Well, if we are so unadjustable, let us just go away and give our places to those who are younger and more adaptable."

The fact that now the normal management in Russia [is starting] to understand what is financial planning; what is the normal accounting, how are you marketing your product, et cetera, et cetera. It is probably the most important fact of the changes in Russian life. That's what creates the base that the economic growth in Russia will practically be continued. I don't know if 5 percent or 6 percent, but that is my fundamental basis for optimism.

But of course, still the tasks are enormous in this field and the programs of the re-education of the personnel we are just starting to solve. Well, I will put just one, a field which is especially close to me, and that is the economic education. A normal economic education was nonexistent in the Soviet Union in the end of '80s, beginning of '90s. What was taught there had nothing to do with the economic theory of the last century. It was the capital critical bourgeois theory of the economy, which mostly was not based on the real books, but -- it was nonsense.

But that is the thousands of professors who are studied this way. Of course, they tried to read some elementary textbooks and to repeat these elementary textbooks to the students, combining them with what they learned from Das Kapital. It's not a very efficient experience.

(Laughter.)

During this year, we were able to establish a few well-functioning, more or less well-functioning, institutions, of which I will mention, for instance, Vysshaya Shkola Ekonomiki (Higher School of Economics) in Moscow, which provides a reasonably good -- not THAT good, but reasonably good -- economic education. And the New Economic School, which provides a reasonably good post-graduate education. But it is still very teeny and the numbers of the trained economics students with a normal Ph.D. of the Western standards are numbered in Russia not in hundreds of people, not tens of people, but a few people.

So it's a very serious task now to elaborate and implement a program which will result, in some perspective, in five, six, seven years, or longer term, in the creation of the necessary quantity of trained people who are able to speak the same language. It's important for mutual understanding, for our relationship with international financial institutions, markets, banks, et cetera. We are personally working on this direction. We have created our economics department, and probably the best Russian educational institution, which is called Moscow Physical and Technical Institute, we provide a splendid choice of young people and good mathematics education. We're trying to give them a good economic education, then to include them in research, then in potential send them, if necessary, to study here, bring them there, et cetera.

MR. ÅSLUND: A question here. Mike, please. Can you please give your name and institution.

MR. JEFF GOLDSTEIN: Jeff Goldstein from the State Department.

Mr. Prime Minister, one of the areas in which President Putin's policies have differed the most from his predecessor is in the area of the relationship between the center and the regions. Even most recently, there have been some articles in the Russian press saying that there are some in the presidential administration who are considering amending the constitution to educe the number of subjects of the Federation. I'd be interested in your point of view, both as a politician and as an economist, in where the proper balance should be. Is this heading in good direction or a dangerous direction?

MR. GAIDAR: Well, I think that up to now the process was moving in the right direction, because the state in which the federal [law] is not fulfilled on the federal territory is not the normal state. The state where you have the barriers of trade between various regions is not a normal functioning market economy. And the fact that you had the federal agencies which were 100 percent subordinated to the governors in the field of law, tax police, et cetera, made all of the protections of the property rights non-existent if the governors somehow disliked you. So from this point of view, the fact that there was a substantial redistribution of the power from the governors to the Federation, if we are speaking about federational responsibilities and federational legislation, is a very healthy, very positive development.

Of course, it also creates some dangers. As everything in Russia, you can overdo it, even the most positive things. (Laughter.) And you can overcentralize it. Up till now, it was the establishment of the federal control of the federal functions, but it's very easy to think, well, this was so nice, why should we not reconstruct the federal control over the regional functions; why should our general governors not interfere in how we run Severnyj Zavoz -- Northern Transportation -- or the preparation for the heating season, et cetera, et cetera. And that would be extremely bad and extremely dangerous. And that's the direction which we do not accept and which we will fight to all possibilities. I am aware this discussion goes on, but it would be, from my point of view, the craziest idea.

As I have mentioned, there are few things that the government in the present could do. It's very difficult to choose the priorities -- WTO, deregulation, property rights, banking reforms. And if you [introduce] any changes into the constitution, you can forget about the WTO, property rights, about everything. Everything will be concentrated on the constitution. And it's absolutely unclear that if you have 30 or 40 Soviet confederations, instead of 89, that you will resolve the essential problems of the Russian society, of the Russian economy.

MR. ÅSLUND: Stuart Goldman, Congressional Research Service.

MR. STUART GOLDMAN: Dr. Gaidar, on your short list of the major accomplishments of the Putin regime last year, you cited the decision to reduce civilian and military personnel at the Ministry of Defense by perhaps as many as 600,000. Then almost in your next breath, you spoke of the danger of the rising influence of the power structures in the Putin regime. And you know, there's a clear contradiction between these tendencies.

When we look at the new military doctrine, the new national security concept, and your foreign policy concept, we see some of the rationales for a tendency, which Putin himself articulates, of restoring Russia's great power status.

Of course, under your leadership, eight, nine years ago, the most important steps were made in reversing the hypermilitarization of the Soviet state that you inherited.

What do you anticipate will be the actual tendencies of the Putin government in this very important area in the next few years? And do you think it's appropriate for the United States and the G-7 to establish some kind of real linkage between Putin regime actions in this area and G-7 and Paris Club actions in terms of debt rescheduling and debt forgiveness?

MR. GAIDAR: Well, I think that his solution to cut down the military personnel by 600,000 persons during the next few years is very reasonable. Even if you are putting in the center only one program, of how to make Russian defense work better, you do have the ability to do it, and you are interested in improving of the quality of the Russian military, then you have to adopt this solution. You are not weakening your military by doing this; you are strengthening your military by doing this. And I think that it's a sensible thing to do, if you are not just reacting under various pressures, but you are serious about the establishment of at least limited military reform.

Well, I think that what I know about the developments in Russian military doctrine, it goes in a sensible direction. I do not even know and do not have a possibility to go into details. But I think it starts to be much more reasonable from the point of view of investment of our priorities, of the sources of dangers, of how the resources should be redistributed, et cetera. And that is one of the positive developments of the Putin administration.

There was usually a not very perfect relationship between the military establishment and the security forces establishment. And I cannot exclude the fact that they were able to so radically change our priorities, and the military view is connected also with this fact.

But I'm afraid that the fact that we have a more or less reasonable approach toward national security at this point and the good decision to cut down the number of military will not contradict the fact that we have the serious increase of the role of the various military-type organizations in our society.

MR. ÅSLUND: Susanne, did you ask your -- Susanne Lotarski, the Department of Commerce.

MS. SUSANNE LOTARSKI: Mr. Gaidar, you spoke about the dangers on the road to democracy as undermining -- as you move to make certain reforms, also undermining in some ways, and the multiple points being eliminated -- you know, first you go after the governors, then you go after the oligarchs in the media, then you go after the political parties, and so on, and before they know it, the multiple points are gone. What do you see in Russia as forces which would prevent that kind of gradual doing away with multiple points of power, and what kind of action would in fact invigorate them?

MR. GAIDAR: Well, everything really depends on the ability of the civil society to organize itself and to defend itself -- no other way. Now we are confronting the very serious battle about the law on the political parties, which in the present form could seriously unwind the possibilities for the political parties to fulfill their functions, and will increase the possibility that by the ways of the bureaucratic manipulations you could exclude the political forces, which you dislike from the participation in the political process.

The good point is that it is not only we who understand it, our opponents in many fields also do understand it, and here you have rather bold interests in serious changes in this law, which will prevent the possibility of the manipulation with the political process. More than these, we agree with the majority of the parties, including our usual opponents, to introduce various laws in the administration of the elections, which will undermine the possibilities of the arbitrary actions of the various bureaucracies in this process, and I hope we will be able to push [them through]. So nothing guarantees that you will be able to undermine these potentially dangerous tendencies, but we do see them and we do think how to fight them.

(QUESTIONER): A follow-up?

MR. ÅSLUND: Yeah, okay.

MR. ANDREI SITOV: Hi. My name is Andrei Sitov and I'm with Itar-Tass. A follow-up on that. There's been some discussion here about the fate of the small political parties in Russia. And in light of what you've just told us, do you feel that that was a good move, a move, as you say, in the right direction?

MR. GAIDAR: Well, I think that the tendency for the political concentration is absolutely inevitable. The ranks just go in this direction, and without any legislation, they will go in this direction. So Russia will not be the country with 180 functioning political parties in that perspective. It will be a country with three, four political parties functioning very possibly, and that's positive.

What is dangerous then? The danger is not the fact that you are trying to push in Russia the big parties. The danger is when you are introducing into law, points which allow you, by the variety of the poorly-specified reasons, just before the elections, to obstruct the political parties participating in the elections, that have substantial levels of support, from the possibility to participate in the political process on the basis of various technicalities included in this law. That's the danger.

MR. ÅSLUND: Toby Gati, Akin, Gump.

MS. TOBY GATI: Yegor, you've spoken a lot about priorities, and obviously, President Putin has made one of his priorities traveling and visiting other heads of state, time that could be used, perhaps, some would argue, on doing some of the things you talked about at home. Could you talk about the goal of some of those trips, and whether the focus on foreign policy has helped or hindered achieving some of the domestic agenda? I have in mind particularly trips to China, India and places like Cuba.

MR. GAIDAR: Well, generally, I do not think that this is a problem. The problem for the president is not that he has to sit in his office 365 days from 9:00 in the morning till 10:00 in the evening working on these three or four subjects. His task is, first of all, to define these subjects -- you do not need 365 days to do it -- and then to put a clear message to your administration, to your government, and to proportional majority for the Duma that these are the priorities. You do not need a lot of time to do it, but you need a lot of decision-making power.

As to the international activity, well, we have an active president. He would like to understand the present world. He would like to make the personal relationships or the personal connections. And I personally have no objections to this occurring.

MR. ÅSLUND: The last question from Fred Hiatt, Washington Post.

MR. FRED HIATT: Thanks. Just to follow up on this question about support for the Right Forces. Nine or 10 years ago you talked about privatization as something that would eventually create a class in society that would support your kind of movement. To what extent has that happened, when you talk about the difficulties of moving beyond Moscow and St. Petersburg? Talk a little bit about, to what extent are there new forces out there, and who are they?

MR. GAIDAR: Well, generally, of course, it has happened. Our basis of support is mostly now new businesses where those employed are more or less well-functioning people, small, private enterprises. Well, the social structure I spoke to you [about]. It is more of those who are well paid and less of those who are poorly paid. It's more of those who are young and less of those who are old. It's more of those who are well educated and less of those who are poorly educated, and more of those who are urban and less of those who are rural. So, of course, the creation of this new sector is a very important factor which helps us to be serious in the formation of the new political structure.

If previously a very substantial part of our activists were first of all the Soviet-era intelligentsia, they still constitute some part of our support, but of course we see another part coming from the new businesses, et cetera. They do not easily go together, to combine the old intelligentsia, which was a collection, for instance, of Demokraticheskaya Rossiya, and the young, not always perfect, businessmen. They are speaking different languages. They have different priorities. But somehow, our most serious task is to put them together. Only then we can create a strong political force.

MR. ÅSLUND: Perhaps I could pose a very last question, Yegor Timurovich. After all, this is Washington and this is a new administration, what are the three key pieces of advice you would like to give to this administration with regard to Russia?

MR. GAIDAR: Well, my first advice would be to be calm before you formulate your priorities on Russia. So first, try to understand what you would like to see as the goals of American policy for Russia, and then start expressing a lot of public relations priorities. The other way, it is not cost-efficient. So first of all, going to ask yourself, discuss internally what should be the priorities, then start making the public declarations. That would be first.

Second, try to create these priorities for Russia and try to think strategically about what you really need from Russia. How strategically you would like to see your relationship with Russia. Well, there are three possible strategic goals which could be formulated. One, very ambitious -- we would like -- well, one would be perhaps really unrealistic. We would like to see another United States of America in Russia. It's impossible because we do not have so long a democratic market history, so I am extolling this as unrealistic. The second ambitious goal, we would like to establish a very close, alliance-type relationship in the long-term perspective, maybe with the model of United States-French relationship, which is not perfect, which has a lot of problems, which there are distractions, et cetera, but still they are alliance-type relationship. This is a very ambitious goal; from my point of view, it would be a very good goal, but that's the choice of the American administration.

A second possibility, you would like to have the correct relationship with Russia, which is at an arm-distance length, with understanding our own security problems, not disregarding Russian security problems, keeping the dialogue, et cetera.

Third, we do not care about Russia at all, we have our own priorities, we will do whatever we wish, we will fool with Russian reform. This third approach, from my point of view, is foolish. But at least all of these solutions are a comprehensive set of ideas and of policies. And that is the second [advice].

The third advice will be to understand that the more we're being judged in the big public rhetoric during the next few months, the [more] difficult it will be to establish the working, pragmatic relationship with Russia.

Thank you. (Applause.)

MR. ÅSLUND: Thank you very much.

[END OF EVENT.]