Putin dismisses economist critical of Yukos case

THE BALTIMORE SUN

MOSCOW, Russia - President Vladimir V. Putin dismissed his chief representative to the leading group of industrialized nations yesterday, a week after the economist blasted the Kremlin's case against the oil giant Yukos as "the swindle of the year."

Andrei Illarionov, who apparently retains his post as an economic adviser to Putin, is a government insider who has become critical of the Kremlin's increasing control of the economy, the news media and politics. His public split with Putin may signal a power struggle within the government.

Illarionov, 43, a former economics teacher at Leningrad State University, represented Putin at meetings of the Group of Eight, the club of the world's wealthiest nations - Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

The Kremlin announced yesterday the appointment of a Putin aide, Igor Shubalov, to the chief representative's post, the Russian news agency Interfax reported. One of Shubalov's most important tasks, the Kremlin said, is to prepare for Putin's assumption of the rotating presidency of the G-8, scheduled for 2006.

No reason was given for Illarionov's dismissal. But during a Dec. 28 news conference, Illarionov was highly critical of Russian economic policy in general and the seizure and sale of Yukos' chief asset, Yuganskneftegaz, by tax authorities in particular.

"We have passed the crossroads - we are in a different country," he said. "The transition has taken place to an interventionist model with dramatic and utterly incompetent interference from the state."

The next day, Illarionov offered even sharper criticism of his boss in an interview on the talk-radio station, Ekho Moskvy. Putin and his closest associates "answer for everything and listen to no one," the economist said.

By cutting himself off from all but those who agree with him, Illarionov said, Putin is following an "extremely dangerous" course.

"Intelligent leaders never cease to see and listen to what is happening in the country, and any limitation on the flow of information is mortally dangerous," Illarionov said.

The economist's criticism comes as Russia's economy is slowing, despite oil prices hovering around $40 per barrel. Russia is the world's second-largest oil producer after Saudi Arabia.

The state-owned oil company Rosneft acquired a three-quarters stake in Yuganskneftegaz for $9.35 billion at an auction Dec. 19. The sale was ostensibly scheduled to settle a tax bill and penalties of $28 billion.

Yukos officials said the company was never given a chance to pay. A company statement issued Friday said Russia "chose to ignore the rule of law, both in Russia and internationally, by facilitating Rosneft's illegal seizure of Yuganskneftegaz."

The purchaser was a previously unknown company, the Baikal Finance Group, registered in a building that housed a mobile phone shop and cafe in the sleepy town of Tver, 125 miles north of Moscow. The company, whose owners are not publicly known, quickly sold the property to Rosneft.

The maneuvering was seen by analysts as an effort by the Kremlin to evade an order blocking the sale of Yuganskneftegaz issued in U.S. Bankruptcy Court in Houston. The judge's order apparently prevented international banks from financing the purchase.

Last week, Putin abandoned his insistence that the case against Yukos was strictly about taxes, saying that the takeover reversed the illegitimate transfer of state assets into private hands.

The president told reporters that Russia's wealthy "oligarchs" grabbed valuable state industries and resources in the 1990s using "various tricks" and sometimes outright lawbreaking.

"Today, the state, using absolutely legal market mechanisms, is securing its interests," Putin said. "I consider this to be quite normal."

Illarionov's dismissal came as the German business newspaper Handelsblatt published an interview with Russian Foreign Minister Sergei Lavrov in which he, too, defended the Yukos sale.

"We have our own laws, and there are international law principles," Lavrov said. "We have been tackling all problems dealing with the Yukos company's tax debt in line with our laws, avoiding any violations of international law."

Lavrov dismissed warnings from the U.S. government that the dismantling of Yukos could restrict foreign investment in Russia. These warnings, he said, "are not confirmed by the information we have."

Illarionov served as an adviser to then Prime Minister Viktor S. Chernomyrdin in the early 1990s, but quit in 1994 after clashing over policy with Central Bank chief Viktor Gerashchenko. As an independent economist, Illarionov predicted the disastrous 1998 ruble crisis and bond default.

Putin appointed Illarionov as his adviser on economic issues in April 2000, and named him as his envoy to the G-8 a month later.

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