GONE: Illarionov, in TIME's Moscow office last week
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Putin insists that he is merely pursuing his nation's best interests. And he can claim some success: growth is a robust 6%; foreign debt has been slashed to one-tenth of what it was (as a percentage of the total Russian economy) six years ago; and, like Norway, the nation has been stashing away a part of its oil revenues in a "stabilization fund" that can be tapped in the future if oil prices drop sharply, causing a shortfall in the state budget. Putin also argues that, as the world's top natural-gas exporter and a leading oil producer, Russia needs to keep tight control on energy to ensure security of supply. "Russia must aspire to claim world leadership in the realm of energy," he told his Security Council late last month. Russia even justifies the Ukrainian gas price increases by saying that it is simply demanding a long-overdue market rate.
Moreover, Putin is taking steps to ensure that Russia remains in favor with international investors. On Dec. 23, he signed a law that allows foreigners to acquire up to 49% of state-controlled gas and oil company Gazprom. And Rosneft, the Russian firm that acquired the key assets of Yukos, is currently planning a public offering of up to 30% of its stock in 2006, a move that could raise as much as $20 billion. Rosneft is expected to seek a listing on the London Stock Exchange in the process.
But critics, including Illarionov, say that Russia's economy is actually underperforming. Given the windfall profits it has been receiving from high oil prices, Russia's growth rate should be more like 15% than 6%, says Illarionov. Furthermore, Russia runs a clear risk by pegging so much of its economy to the energy sector. Illarionov describes Russia as evolving into "a new corporatist model" — one in which the economy is dominated by monopolistic quasi–state controlled corporations. In addition to Russia's renationalization of the oil industry, in November the country's weapons-trade monopoly, Rosoboronexport, announced it was taking control of Russia's largest auto manufacturer, the formerly privatized AvtoVAZ.
The combination of such reassertion of state control and the opening up of a portion of state firms to private investors enables Putin to argue that he is introducing market reforms into the economy even as he tightens his grip elsewhere. The media has long been muzzled, the judiciary controlled; regional governors are now appointed by Putin rather than elected; and the activities of political parties have been harshly curtailed. "The trends that have been long accumulating," Illarionov says, "found their completion and finally shaped up in 2005." Lilia Shevtsova, senior analyst at the Moscow Carnegie Center in Moscow, laments that Putin has "abandoned even halfhearted attempts at deregulating the economy, pursuing administrative reform or curbing corruption." Instead, she says, "Russia is completing the creation of a post-Soviet state, which continues the Russian tradition of authority raised high above society."
All of this clearly disturbs Illarionov. "I wish Russia would be a G-8 member as a developed, free and democratic country. I worked to that end," he told Time. Putin will be taking a different message to the G-8. The question is, Who will the other seven believe?