NEWS

Anna Arutunyan

What a difference a decade makes.

On the eve of the millennium, just before President Boris Yeltsin stepped down, his anointed successor, Vladimir Putin, dropped in at a celebration organised by the Union of Right Forces, which had just won its first seats in the State Duma with a vote of nearly 9 per cent, and toasted their success.

The liberal political camp was in the ascendancy, believing that it had a firm ally about to be installed in the Kremlin. For Yegor Gaidar, the free-market reformer who died last month (almost exactly a decade later) - and his colleagues at the party that night, the moment was sweet as the champagne that flowed.

The sudden appearance of Putin - who would assume the acting presidency a few days later after a surprise New Year's Eve abdication by Yeltsin - underlined his closeness to the fledgling party, but already hinted at a future parting of the ways with political liberalism, then-NTV television anchor Vladimir Kara-Murza recalled in a recent
interview. 

When Putin turned up at the party, held on Dec. 19, 1999, at the Tri Peskarya, or Three Gudgeons, café in the basement of the RIA Novosti building, "there were four TVs tuned to different channels - Sergei Dorenko's Vremya, Nikolai Svanidze's Zerkalo, the pro-Luzhkov TV-Tsentr and [Yevgeny] Kiselyov's Itogi," Kara-Murza said. "And Putin, like the intelligence officer that he was, picked up the remote and switched off the sound on every channel except for Itogi. Because he didn't need sycophantism, he needed real information about the elections, and he understood that NTV gave unbiased information."

Over the following year, Putin would clash repeatedly with Kara-Murza's channel over its determinedly independent political line, and the resulting standoff led to its owner, media tycoon Vladimir Gusinsky, handing NTV over to Kremlin-friendly Gazprom-Media.

'Putin Is Our Everything'

But back in late 1999, no such rift had appeared. The Union of Right Forces, led by Boris Nemstov, Gaidar, fellow privatisation guru Anatoly Chubais and former Prime Minister Sergei Kiriyenko, ran on a pro-Putin platform, and making the rounds of the liberal intelligentsia that holiday season were T-shirts (produced by the Foundation for Effective Politics) with a picture of Putin and the words "Putin Is Our Everything."

While there were some hopes for Putin, Kara-Murza says there were no illusions, and people like Gaidar understood what was in store on New Year's Eve. "But we didn't think we would be shut down so quickly," he said. "We didn't think the Stalin hymn would come back, we didn't expect that from him. We were mistaken."

As for the reason behind Putin's visit, "Two days later, he was toasting Stalin, so the way I see it was that he needed the support of the liberal wing - that was why he came," said Kara-Murza. "After us, he went to visit Yedinstvo [the predecessor to the current party of power, United Russia], which also got into the Duma. I don't know if he visited the Communists or LDPR, but he visited [Luzhkov's] Our Fatherland is Russia party for certain. He needed the support of parliamentarians to get elected. But back then the elections were relatively free."

Political power shifts

While the political balance of power shifted dramatically over time from the liberals to the siloviki, or security-service men, whom Putin brought into positions of influence in the Kremlin, many liberal economic reforms were implemented - particularly during Vladimir Putin's first term in office. And those close to Gaidar were instrumental in getting them passed.

Gaidar himself, however, remained outside Putin's administration - and the Union of Right Forces' influence waned (the party dissolved itself in 2008, after two unsuccessful Duma campaigns). To this day, Gaidar remains a bogeyman for many ordinary Russians, absorbing much of the blame for the 1990s reforms that many of today's pro-Kremlin liberal elite - deemed painful but necessary.

But a testament to Gaidar's long-lasting influence as an economist was provided last month, when the roll-call of close friends at his funeral read like a veritable who's who of top policymakers - led by Finance Minister Alexei Kudrin, Chubais (now head of Rosnano), Medvedev's economic aide Arkady Dvorkovich, and many others.

"The so-called St. Petersburg economic group that was actively pushing for reforms in the early 1990s - Kudrin, Sergei Ignatiyev, German Gref, Chubais, [Alexei] Ulyukayev, Dvorkovich - they are very influential today," said Vladimir Pribylovsky, a veteran Kremlin-watcher who heads the Panorama think tank. "They have made concessions to their ideology to remain influential," he added, noting that Kudrin, for instance, was very opposed to the 2003 arrest of Yukos chief Mikhail Khodorkovsky, but did not speak out about it afterwards.

First-term reforms

A follower of the free-market ideas of Milton Friedman, Gaidar was reviled by much of the population for the "shock therapy" reforms he conducted while in government in 1992, which led to hyperinflation, job losses and pauperisation for much of the population. But the Kremlin's economic policies long after Gaidar left the government were far more neo-liberal than is often acknowledged, analysts say. This is particularly true of Vladimir Putin's first presidential term.

"The years between 2000 and 2003 were probably the fastest period of economic reform in a decade, since the early 1990s," said Roland Nash, chief strategist at Renaissance Capital, who also believes that Russia managed to avoid backtracking on liberal economic policies during the crisis.

Nash and other economists pointed to the drafting of a tax code, a 13 per cent flat tax rate, energy reform and pension reform as examples of the Kremlin's liberal policies. Chubais presided over the energy reform long after his name became associated with Gaidar's shock therapy.

For many, the main differences between Gaidar's vision and the Kremlin's actions have been political. Gaidar stood for both political and economic liberalism, but the government opted for the latter. Some observers argue today that accomplishing both at the same time was impossible.

"There's been a trade-off between some political illiberalism and some economic liberalism," said Nash.

Most ordinary Russians have never really accepted Gaidar-style liberal economic reforms, said Yevgeny Gavrilenkov, chief economist at Troika Dialog. "If you look at polls, up to 60 per cent of the population support a stronger state role, and that is what the government has been doing. The government by definition was more liberal than the general population. It had to be, because otherwise it would not be able to achieve economic growth."

The 2010 strategy, developed in 2000, involved a lot of economists from Gaidar's circle, and was macro-economically liberal, said Gavrilenkov.

Partially, it also included restructuring state monopolies, "but only energy reform was carried through," said Gavrilenkov. "It was a copy of what had happened to the oil industry in the 1990s - by creating a system of competition."

The appearance of a tax code [that] was moderately liberal got rid of the uncertainties that plagued the economy previously, said Gavrilenkov. One of the Kremlin's most controversial measures - the monetisation of social benefits in 2005 - didn't really happen because it was carried out too late, he said. "By that point, there was a wide gap between wage growth and pension growth," and this led to a backlash. Because of that, the government was forced to forego some of the reform measures.

Liberal anti-crisis measures

But Yevgeny Gontmakher, an outspoken economist at the Institute of Contemporary Development (a think tank that advises, and is chaired by, President Dmitry Medvedev) argues that despite a liberal financial policy involving the stock market and financial instruments, the approach to the real sector of the economy has not been liberal at all. In principle, the government tended to agree with Gaidar's policies - it just didn't follow through on them, said Gontmakher.

"Gaidar advised the government, and if the government didn't always listen, he chose to be patient," he said. "An opposition is when there are irreconcilable differences. This was not the case." Gaidar felt that economically, the government was too careful, and, most of all, too authoritarian, said Gontmakher. "They said the right things, and they continue to say them, but when it comes to action, there are problems."

Arguably, Gaidar's biggest surviving legacy is the government's liberal reaction to the current economic crisis, economists said.

"[Putin and Medvedev] chose to engage the market," said Nash. "They did a really good job... [of keeping] the capital markets open, the trade markets open. There was a little bit of backtracking, but nothing compared to a lot of other countries."