- Do they still call you Mr. No? Many gave you this nickname when you led the Ministry of Finance.
- No, perhaps not any more.
- Aha! You said it again!
- In reality, it’s a myth to presume that finance ministers give everyone the thumbs down indiscriminately, that they are just loaded with cash and never give money to anybody. It is true that requests for help and the problems that need to be addressed always outweigh the funds available in the state coffers. Government ministries and various agencies keep asking, but the resources are rather limited. A choice is made based on analysis, scrutiny by experts and some procedures.
At a certain point, I suggested creating a budget commission led by the prime minister. It incorporated not only government members, but also State Duma MPs and authoritative experts. This panel comprehensively discussed all draft budgets. I called it an institution of expertise. The commission is still there, though I am no longer Russia’s finance minister.
As for Mr. No, it reminds me of one funny moment from my past. In the early 2000s, then US President Bill Clinton visited Russia. Before the talks in the Kremlin, President Vladimir Putin was introducing the members of our delegation. When it was my turn, he told Clinton. “Our Minister of Finance.” The US leader smiled at me and asked: “Where’s the red pen you use to reject budget requests?”
Everybody shares the same typical opinion of public financiers.
I’d like to recall that during my term of office, Russia’s economic growth had averaged 5.3% over a period of 11 years. Even despite the disastrous 2009 crisis, when we plunged 8%. But in all other years, the GDP had been growing by 7-8%. That rate was above the global average. Russia’s share in the world economy was growing.
Now it can be only dreamed about…
- Is there anyone whom the finance minister is unable to refuse?
- There aren’t any. “No” can be said to anyone.
- Even the prime minister and the president?
- You are obliged to explain your stance, but the head of state and the prime minister have the right to make the decision they deem to be right. Such things did happen during my career.
Putin has publicly mentioned several times those instances where I opposed certain steps he supported. He did it his own way, but then, after some time he would agree with me occasionally and say why didn’t you warn me on time? It’s essential to always calculate the risks and foresee the effects of any decision.
- This means it is possible to object only as long as the decision has not taken effect yet, right?
- Certainly. After that you must go and do as you are told.
Putin has never liked being flattered and hearing only “yeses” all the time. He appreciated my unbiased opinion as a specialist. We’d worked together a lot, starting from the municipal administration in St. Petersburg, where we both were first deputies of then Mayor Anatoly Sobchak.
Putin was appointed a bit earlier than I was. Several months later, I became deputy mayor and then first deputy mayor. Putin had been ahead all the time.
When we moved to Moscow, we became closer, because at first we did not have a very large range of contacts. I sincerely hoped that Putin would get a job in the Kremlin administration. Yet, it was our mutual friends, not I, who invited him to the position of deputy chief of the presidential property department.
Later, he replaced me as chief of the presidential staff’s control department, when I was reshuffled to the Ministry of Finance. That’s what connects us in life.
- Do you address each other informally, on a first-name basis when you meet in private?
- Sometimes. If we are not at work and are discussing private affairs.
- Is it true that when he moved to Moscow, Putin resided at your countryside dacha in Arkhangelskoye outside Moscow until housing was found for him?
- Plain gossip. It is true, though, that we lived next door and Putin quite often came to us on a neighborly visit together with his daughters. His girls liked to play with my Labrador. I think this explains why they decided to get one too, and they named the dog, Koni.
- Was Putin your main acquaintance in St. Petersburg?
- It’s hard to tell. I love that city. It was there that I studied at the university, and found everything in my life – knowledge, profession, teachers and friends… We still keep meeting each other, we stay in touch, and it is very important to me.
Lastly, St. Petersburg is a city where my relatives still live today – my mother, my sisters, my nephews, my daughter and my grandchildren…
Quite a few groundbreaking relationships started there. It is hard for me to single out any of them. Although it is true that Putin influenced my life more than anybody else.
- You moved there from Arkhangelsk in 1978, am I right?
- Yes, right after my high school graduation party. I remember our class roamed around the city all night long until the break of dawn. Then we went on a brief yachting trip along the Severnaya Dvina river… Then I came home and without having a minute of sleep and headed to the airport. My ticket had been bought in advance. As soon as I disembarked at Pulkovo, I went to Vasilyevsky Island, where the university is.
My close friends know this part of the story of my life well enough. First, I intended to apply to the economics department of Moscow State University. I had even taken a distance-learning prep course there and sent my tests and other papers there as well. At the very last moment, my father, an army officer, was transferred to Leningrad. We discussed the situation with the family and my plans changed.
Prior to that, I’d never been to St. Petersburg. My father went there ahead of us and arranged for accommodations at an officer’s hostel right on Vasilyevsky Island. My dad was chief of a department at the Logistics and Transport Academy, which is just 300 yards away from the university’s main building. He accompanied me to the exams and spent hours waiting for me to come out. He was terribly upset when I failed to score enough points to get into the daytime department…
- How many points?
- I don’t remember very well now. I failed the math exam. Many others got low or unsatisfactory marks then.
In the end, I tried again and did well enough to qualify for the evening department. Naturally, I had to go and find a job. My father put in a word for me and I was hired as an automotive technician at a motor vehicles experimental department at his Academy.
- Did you have any experience with motor vehicles then?
- At first, none at all. I obtained some in due time. It was a large garage, where the internal combustion engines of all key models of military vehicles were tested on special stands. Various tests were conducted there. For instance, special conditions were created to mirror a desert in the south or the Arctic. The engines kept running at full throttle for several days on end under high and low air temperatures. The work load simulated rides under different road conditions and across different terrain – uphill or through deep snow…
- And what was your task?
- I had to monitor the instruments’ readings and record all the parameters.
A year later, I was experienced enough to prepare demonstration stands for the Academy’s trainees and even helped officers to enhance some measurement instruments. I was promoted to instructor. The laboratory I was in charge of even earned the Socialist Labor award for impeccable operation and for providing crucial assistance to the experiments the career officers were staging.
So, this carried on for two years. After that I managed to transfer to the University’s daytime department. And I kept receiving good marks in mathematics. Thus, I proved that I knew the subject well enough.
I was not called up for military service, but there was a military department for reservists at the university’s history faculty. We were trained to be artillery officers. I can still rattle off the characteristics of a 122 mm howitzer D-30. After university, we went for a three-month-long training course in the field at the Pskov Region’s Strugy Krasnyie firing range. We had a lot of firing practice then. All day long. I’m an artillery platoon commander, according to my official military qualification. And my rank is an artillery reserve colonel.
- And what was your first housing accommodation in St. Petersburg like?
- We were granted one room in a communal apartment on the 19th line (street) on Vasilyevsky Island, it overlooked Lieutenant Schmidt Embankment. Twenty square meters for five. My sisters and I had bunk beds –very ordinary steel ones, like those in army barracks.
There were five families in that apartment. So I’m well familiar with what everyday life and customs in such communal housing in St. Petersburg was like.
After more than a year, my father was granted a separate apartment on Engles Street. Four rooms! What an incredible luxury! Nowadays, next to that house of ours is a subway station. Back then, it was a suburb. I still remember when whole villages were torn down and urban neighborhoods mushroomed in their place. The subway line was laid much later. Each morning, I would hop on a streetcar to ride across the city to my place of work at the Academy. Each time I got off at the easternmost tip of Vasilyevsky Island called Strelka (literally Arrow), I enjoyed the beauty of that place. And I was brimming with pride.
- Any regrets today about not being a Moscow State University student?
- I’ve lived in Moscow for 24 years now, in contrast to the 18 that I had spent in St. Petersburg. But youth is youth. You surely understand what I mean…
St. Petersburg will forever remain my hometown. I have to reiterate that it was there that I attended university, where I worked at the mayor’s office at a defining moment in history when the country was being transformed into a market economy. It’s my flesh and blood.
However, perhaps you know that I was born in Latvia, where my father served in the army at that moment.
- Does your mother have Latvian citizenship?
- She lived in Russia all her adult life. My mother’s family had been victims of the repression. In 1940, she and her brother and my grandmother were exiled to the Krasnoyarsk Region in Siberia.
And her father, my granddad, died in a Gulag in 1943, somewhere in the Kirov Region. We were unaware of that for a long time. When I quit the civil service, I began to study the history of my family and managed to unearth some facts.
My mother had stayed in the Krasnoyarsk Region until she turned 16. Then she returned to Latvia, where she met my father. He served in Dobele then. It’s a small but very old town with an ancient fortress 60 kilometers away from Riga. My father’s division was headquartered there.
- I hear people say your family home has survived to this day. Is that so?
- Yes, now it houses the office of the city’s prosecutor. It’s a two-storey building. Not a very big one by modern standards. In those days, it was quite impressive. My grandfather was a builder. He ran a cooperative association. My mother was born there, and so was I, in the maternity home next door.
- Latvia had a policy of returning real estate to those who had owned it before 1940.
- My mother was against having property there. She preferred to get cash compensation. The money lost value in an instant.
- How come her son, an experienced financier, didn’t advise her to do something better?
- She preferred to keep it secret. She did not tell me what the purpose of her trip to Latvia was then. Some locals advised her against having property there … You live in a different world, some said. That’s the place for you to return to. What will you need this house for?
Honestly speaking, I haven’t studied my family roots on my mother’s side. I’m still digging into the subject. I know that my grandmother was a translator and spoke several languages – German, English, Lithuanian, Estonian, Polish and Russian…
- Is the Siberian exile a sensitive topic in your family?
- No, we never talk about it or recollect anything. My grandmother was a wise woman. She did her utmost to ensure that my mother had no feeling of discomfort or antagonism or grudge against the authorities.
- Do you speak Latvian?
- When we left Dobele, I was seven. Naturally, I’ve forgotten everything since. I may recall some short song, if I try really hard.
- When was the last time you visited your place of birth?
- Last July. There was a good reason for me to go there.
- And what was the reason?
- When I visited Dobele eight years ago, my relatives took me to a local music school, where they had taught for many generations. I was shown the choir, the orchestra and the students. The building had not undergone any repairs since the breakup of the Soviet Union, it was dilapidated. I even asked: “How can children study in conditions like these? Absolutely unacceptable.” I saw fungi on the walls and sensed the smell of rotting wood. I was told: “That’s all we can afford.” Then raising money for repairs there crossed my mind.
In Russia, I tried to do everything I can to help educational and research institutions that need support. Charities and sponsors are very helpful. Naturally, I started doing all that when I quit the civil service.
Now, back to Latvia. I shared my idea with Pyotr Aven, who has Latvian roots, too. In the end, we raised enough money to repair the school and to build a concert hall. The project was finished last July.
I went there for the inauguration. Aven was too busy to attend. He delegated the chief of his charity instead. It was a very joyous and memorable event. It was in Riga’s newspapers and on Latvia’s TV news.
- It turns out that you provided humanitarian aid to a member of the European Union.
- That’s an exaggeration, of course, but it was a pleasure to participate in repairing a school at a place that played a role in my family’s past.
- And what about your father’s side of the family?
- Just recently I found out that I’m a distant relative of Peter Struve, a Russian politician, economist, essayist and public figure.
The family name of my father’s grandmother is Kalistova. She was from the Kostroma Gubernia. Her great grand-uncle was married to Peter Struve’s niece, the daughter of his brother. Our family has a large St. Petersburg branch. As is known, Peter Struve’s grandfather had been chief of the Derpt (Tartu) Observatory. At the tsar’s invitation, he resettled to St. Petersburg where he founded the Pulkovo Observatory.
- Genetically, it looks like your economic talents were inherited from Peter Struve.
- I’d rather say that Anatoly Chubais was the one who woke me up in this sense. At the end of 1990, he was a deputy chief of Leningrad’s Executive Committee. He invited me to be his deputy on the committee of economic reform. In June 1991, Anatoly Sobchak was elected mayor and he picked Chubais as his chief economic adviser. Chubais and I created a free trade zone in St. Petersburg. It was one of the first in Russia. In the autumn of the same year, Boris Yeltsin threw his weight behind Yegor Gaidar’s team and the reform policy commenced on a national scale. I became a deputy chairman of the Georgy Khizha-led economic development committee at the St. Petersburg mayor’s office.
In the summer of 1992, he was appointed deputy prime minister in the federal government. Before stepping down he told me: “There’s one thing I haven’t done yet. I haven’t appointed the chief of the department of finance. Alexei, you are the one who’ll take over.” Then he went to Sobchak and settled it right then and there. In August 1992, I became in charge of a department that had two command centers – Russia’s Ministry of Finance and the office of the city’s Mayor.
In 1993, Sobchak promoted me to his deputy and in 1994, to his first deputy…
- In 1996, you could’ve run in the mayoral race as a candidate?
- No, but a rumor like this was launched, which made Sobchak very nervous. At a certain point, I was pretty close to losing my seat, because Sobchak was really eyeing me with great suspicion. This was absolutely baseless, because I had no intention of standing in his way. It is true that I often met with people and often appeared at various public events, but I invariably supported Sobchak’s candidacy and helped his election team in various ways.
Sobchak’s opponents were political heavyweights, but, regrettably, he refused to earnestly weigh that the risks of a loss were serious enough and he eventually lost by a 1.5% margin. Sobchak was defeated by Vladimir Yakovlev in the debates. His rival systematically pushed forward with his set of arguments, while Sobchak thought he would overpower his opponent in one fine swoop, using his dynamic skills as an orator to his advantage. In the end, everything ended up in a loud quarrel over economic issues. These were certainly not Sobchak’s weapon of choice.
Several years after that, when Sobchak returned to Russia after emigrating to Paris, he came to my room at the presidential control department at Moscow’s Staraya Square and told me: “Alas, back in 1996 I was unaware who my real friends and my real enemies were…”
- Everybody makes mistakes in life. The price to be paid for them may vary, though. Sometimes I have a feeling that on September 26, 2011 you bluffed when you got into an open conflict with then President Dmitry Medvedev.
- Why do you call it a bluff?
- It looked like you hoped then Prime Minister Vladimir Putin would support you in that situation, but he dismissed you at Medvedev’s request. Did you overestimate your own importance to Putin?
- That’s a one-sided interpretation of those events. Medvedev was the president then. He had the power of decision-making. When I started that open discussion, I did not hope for anyone’s protection. This should be kept in mind first of all. Second. In February of that year, I told Putin that I would like to quit the finance minister’s post. Putin asked me to stay on for some time. This is an open secret.
The events that followed in September were neither a shock nor the result of some ill-considered move.
- But it was the first and only case in your career, when you were shown the door, wasn’t it?
- I repeat, I made the decision to leave myself. Six months before the resignation actually happened.
As for quitting, such things had happened before. When Vladimir Yakovlev was elected mayor of St. Petersburg, the powers of all deputies of the city’s number one official were expiring. Some of my colleagues stayed. I left.
- Were you asked to stay?
- No. It would’ve been impossible. Yakovlev and I had very different ideas of how to develop the city’s economy and infrastructure. Moreover, during the election campaign he strongly criticized me for not providing enough money to the housing and utilities sector, and for roads and construction sites. That was his main argument.
I saw no circumstances, where I might become a member of the new team, and I started looking for a new job. Soon I was invited to the position of deputy chief of the presidential staff, chief of the presidential control department and I accepted.
- In 2011, you left the Ministry of Finance without having any place to go.
- My desire was to leave the civil service.
As you may remember, I was asked to consider the possibility of governing the Bank of Russia. I decided against it. I thought I would be better off becoming a scholar, an expert. That possibility looked far more lucrative to me.
- Why did you shrug off the idea of leading the Central Bank?
- I had certain reasons for that. The way I saw it, the economic policies at that time no longer met the existing challenges. Experience has shown that our growth rates slumped and hovered at a low for a historically long period of time of about ten years.
- But even the foreign circumstances changed. The sanctions over Crimea and Donbass and the 2014 world economic crisis came on the scene.
- Generally speaking, Russia had to struggle through some very dramatic periods in its history over many centuries. But showing a minimum growth rate of one percent for more than ten years running… Excuse me, there was nothing like that even in the Soviet period. We may look back much farther, starting with mid-19th century. The years of wars and revolutions should be excluded, of course.
In the 1990s, we experienced a major slump, but that period was much shorter than ten years.
I can point to some causes behind the problems we face: the volatility of energy prices, world crises, and sanctions against our country… And still I think that we might have had a higher economic growth rate.
- Were the six years outside the civil service a great test for you?
- Absolutely not. I felt quite comfortable, although I’ve surely heard some people say that those who had held high positions for too long feel uneasy, because they lack the previous level of making decisions.
- And the attributes of status must be of importance. Say, a VIP limo with a flashing blue light on top of the vehicle?
- That was of no value to me at all. Absolutely! I enjoyed freedom.
- Were you entitled to having bodyguards?
- I did not use them most of the time when I was deputy prime minister, except for one single year when, according to our secret services, an assassination attempt was plotted against me. On instructions from President Vladimir Putin, FSO secret service bodyguards remained by my side right up until that risk was completely gone.
- What year was that?
- I don’t remember exactly. Around 2005 or 2006.
- What was the fuss about?
- The FSO uncovered an assassination plot against me.
- Can we hear the details?
- I’m not sure if I can disclose such information… I turned down a private company’s special benefits. It had received certain resources from the government budget. For many years before my appointment to the government, these benefits had been extended, but I did not do it.
There have been such speculations, but they haven’t been proven.
- Did you deny such privileges to that company personally?
- No, it was a purely technical, routine affair. The documents were being put together for consideration. I’d never seen any representatives of that company or met with them in person.
- Did it ever occur to you that some people might stoop so low and commit a crime?
- I had no such thoughts. It looked like an ordinary, commonplace affair to me. At that moment, we were revising many decisions made by the previous ministers and deputy prime-ministers. It was a matter of principle to tie up some loose ends. But, I could have never imagined that somebody might have dared to go to such extremes. Some investigations followed and some traces are said to have been discovered.
- Were you very nervous?
- Why, naturally, to a degree. The FSO agents obtained a detailed plan for the assassination plot: when, where and under what circumstances…
- Did you have to change your rules, customs and ordinary lifestyle?
- It’s inevitable in a situation where bodyguards are by your side round the clock… I lived at a government-run home in the countryside and those responsible for my security were there, too…
- Was a criminal case opened?
- Everything came to a halt at the preliminary investigation phase. The crime was foiled. Everybody remained alive and nobody was hurt. It was decided to stop there.
- Did you breathe a sigh of relief when the threat was gone, or did you continue to look over your shoulder for a while?
- I felt just a bit uneasy, but then I was promised that it was OK and there was nothing for me to worry about.
Of course, I feel far more freedom today than when I had a government position. To my recollection, some of your fellow journalists even wrote that Kudrin had allegedly resigned to openly express his opinion on any event.
- But that was precisely so. In 2011, you even joined the opposition rallies and addressed a crowd on Sakharov Avenue.
- Generally speaking, I felt quite comfortable and said what was really on my mind to the public.
- And now?
- Any civil servant has official restrictions to abide by and unofficial, ethical ones, too. For instance, as the minister of finance I had to make decisions concerning expenditures on law enforcement, national defense, and key social issues, these are very sensitive to the public. I was obliged to act strictly within my purview and by no means touch upon other high-profile issues. Otherwise, I would have had considerable complications in relations with different factions in the State Duma. In the meantime, it is the legislators who debate and approve the budget.
It is better to stay objective and impartial. Also, I provided regular reports to the president. Why should the president think about and know my political preferences? That’s unnecessary. In the public realm, the minister of finance has to be very reserved and balanced, and stay aloof from some events and refrain from personal commentaries.
Regrettably, the position of the Audit Chamber’s chief implies certain restrictions, meaning a code of conduct in the media space.
- You say that before being appointed as the Audit Chamber’s chief you held consultations with President Vladimir Putin. Was your purpose to have the Chamber’s powers expanded?
- No, we operate within the framework of the law that we have. Except for two amendments.
The document is well-written strategically. For this, we should thank Stepashin and Golikova, who contributed to the adoption of that law. There is much room for expanding modern types of auditing. The issue on the agenda today is not just looking into whether the money was spent properly, but evaluating what the end result should be. OK, the disbursed funds have been spent. But what do we have instead? Have the facilities that were going to be constructed been built in reality? Have there been any improvements in healthcare and education and in terms of support for social programs? In other words, we assess the culminating outcome, the effects on people’s lives, and not the process as such, the final conclusion being “all bricks were laid properly.”
- Are the ambitions you cherished when you joined the Audit Chamber all gone?
- No. For me, the invitation was unexpected and I paused before giving my consent. I said “yes” only after I had a talk with the president.
- Did he talk you into it?
- Putin told me that everything had been agreed with him in advance.
It is true that I had no plans to re-join the civil service. Moreover, I wanted to dedicate myself to the halls of academia, to do some research concerning the world of finance, including the newest, most modern approaches to monetary and credit policies.
- Were you going to do that in Russia?
- Exclusively and most entirely here, but I planned to study the global economy, of course.
I won’t deny that I’ve received different proposals from abroad; offers to become a professor, lecturing, and seats on the boards of large international companies headquartered outside Russia.
- Were you offered good money?
- By private companies, yes. In Russia, I was asked to lead some projects and was also promised a handsome salary.
- Like what?
- Hundreds of thousands of dollars.
- A month?
- A year.
Money is never enough, but there is a certain ethical rule: after you leave a senior civil service post, a cooling-off period must follow. It is wrong to rush head on into positions that might somehow be within the range of your previous realm of authority. It’s worth avoiding any rumors about a conflict of interest. I rejected any such proposals for a period of five years. Just in case.
I’d known all along that I would stay in Russia and I sought to retain the freedom of speaking in public on any economic issues, without being restricted by any commercial or political conditions. And I avoided joining any political parties for the same reason. I did not do that either when I was a government minister or afterwards. Although at a certain point, some speculated that I should try my hand at politics. I refused.
- I was focused on doing my job and hated to be distracted by something else.
- Were you asked to join United Russia?
- I was. In this case I refused, too. I’ve never had any objections to any of my deputies joining some political party, but at the same time I remained certain that this would not be feasible for a government minister.
- Is it true that your successor at the Ministry of Finance, Anton Siluanov, issued instructions to reserve a room for you in the ministry’s building until you found another one for yourself?
- No, that’s gossip, too. I left the building on Ilyinka Street right away and never reserved some room for myself or asked anybody for that. I believed it was fundamentally important. I wished to have no formal links with the ministry. Siluanov had been a subordinate of mine for a long time, so a former boss hanging around might have made him feel awkward. I was keen to avoid expressing opinions or otherwise exerting any pressure. For two years, I refrained from attending the Finance Ministry’s board meetings, although I was repeatedly asked to attend. However, this did not prevent us from meeting in private and discussing some issues.
- And now?
- Now we have completely different roles. The Audit Chamber looks into the budget’s implementation. For this reason, we have to be still more scrupulous.
- What’s your view of the budget that the Ministry of Finance has drafted for three years to come?
- It is very strict.
- Is that a compliment?
- No, a critical remark. We have not exited the crisis yet. I believe that we have enough resources to make the budget milder from a standpoint of increasing spending and supporting the economy, which needs this. We are not investing enough into infrastructure, healthcare and education. I believe that spending should be increased by all means. Instead, next year will see 10% cuts in a number of categories. That could’ve been avoided.
- In what way?
- I expressed my opinion very clearly back two years ago, when I said that the base price of crude oil, or, as it was called once, the cutoff price in the budget rule, might be higher, just as the annual amount of borrowings and the budget deficit. Incidentally, many think that I changed my opinion after I left the office of finance minister.
- Quite right. Putin said that Kudrin’s opinion changed as soon as he left his seat on the ‘treasure chest’…
- I proceed from the country’s real resources and the requirements of a number of branches of the economy and the population. Here’s an example: 2020 is a crisis year and it will see GDP slump by about 4%, according to the latest forecasts by the Economy Ministry.
- Do you disagree with this estimate?
- I do. I suspect the slump will be far worse: between 4% and 5% or still greater.
- Your glass will always remain half-empty.
- I may be wrong, but I see concrete factors. In making forecasts it is impossible to take into account all of them, but still… I feel that we have not yet gauged the effects on small and mid-sized businesses yet. In all likelihood, the real losses will be far higher than the government’s estimates.
Now look. The number of poor this year has grown from approximately 19.5 million to 20.5 million. All these people have to exist below the poverty line.
- They barely get by.
- I agree. A little more than 12,500 rubles is a meager sum for an adult. The more poor people there are, the lower the demand. Some prefer to save for a rainy day due to uncertain job prospects, and avoid buying goods. Some products will remain shelved gathering dust. I believe that the government is too optimistic about the near-term prospects. It hopes that after this year’s slump, next year will see an economic rebound of more than 3%.
But another wave of the COVID-19 pandemic is not priced in the forecast. In the meantime, it has already begun. It is highly likely that this year will also close out with lower rates, and in the first quarter of 2021 Russia’s economy will have to encounter certain difficulties. The GDP may plunge even further.
In 2022-2023, we are unlikely to achieve a growth rate of above 2.5%. For the economy to recover faster there has to be a different combination of factors, those sometimes referred to as structural shifts.
Frankly speaking, I’ve grown sick and tired of repeating that the state budget must be distributed differently. The quality of our workforce is unduly low. And there is a shortage of it, too. Besides, the able-bodied population is shrinking, though pension reform has compensated for this process only to a certain extent.
- But you were a firm proponent of pension reform, weren’t you?
- Yes, I’ve always said that it is necessary to raise the retirement age. Those who argue that this is impossible for us and we need to look for money elsewhere should consider the economy’s proportions. Our economically active population is about 70 million, while about 40 million are retirees. And this ratio keeps worsening. How can a full-fledged pension be paid or even increased? This can be done in two ways - either by upping the retirement age or by raising taxes - no other options are available.
Cutting excessive spending won’t raise enough money for the pension fund. Naturally, we need to boost efficiency and unnecessary costly projects must be abandoned. Corruption should be fought more vigorously, but in the long term this will still be not enough for pensions.
This explains why Russia’s pension reform had to be launched and the retirement age had to be increased.
- When will you reach your retirement age?
- I can’t remember exactly, at 62, if I’m not wrong. I never think about it. I hope that after I leave the civil service I will go ahead with research and teaching.
- Oh, yes. In 2011, you became the dean of the Liberal Arts and Sciences department at St. Petersburg State University. Incidentally, what sort of name is it?
- In 1999, St. Petersburg University launched an inter-departmental program called Liberal Arts and Sciences, this model is widely used in American and European higher educational institutions and universities. The purpose of the Bachelor of Liberal Studies (BLS) degree is to provide students with a solid multidisciplinary groundwork in the Humanities, Natural Sciences, Social Sciences and the Arts, subsequently allowing them to pursue careers in education, business, government, and other such fields. Each student chooses their major only after their sophomore year.
- Sounds logical.
- The top universities in Europe and the US – MIT, Stanford, Harvard and Oxford use this model. The name was derived from the ancient term Artes Liberales that existed in Greek and Roman antiquity. Back then, the fields of knowledge that we call sciences were referred to as liberal arts.
We opted for a program within the framework of cooperation with Bard-College in the US. For many years, it existed as an inter-departmental one. I learned about the program in the early 2000s and started assisting it. In 2003, I joined the board of trustees and in 2011 we made a decision to create a separate department. I became its dean when I still was finance minister. And I’ve administered it for nine years now.
- How much time do you devote to this pursuit of yours?
- When I was not in the civil service, I went there every week. I even delivered lectures on crucial financial policy issues.
- And now?
- I’ve had to put lecturing on pause for the time being. It’s too hard to combine teaching with my current job at the Audit Chamber.
But I keep an eye on what is happening at the department, of course. During the pandemic, we held online conferences with teachers and staff. We have a strong team. For instance, Professor Tatyana Chernigovskaya leads a laboratory for cognitive studies. Our department has computer science, artificial intelligence, art criticism, the art of theater…
- How many students are enrolled there?
- This year there are 180 of them – future holders of bachelor’s and master’s degrees. The competition is fierce – nineteen applicants per vacancy. There are winners of academic competitions (Olympiads) and top scorers on Russia’s Unified State Exam. We grant two diplomas – one issued by the St. Petersburg University and the other from Bard College in the United States. Students from different American universities come to study for one semester. Each year, the department holds international conferences on different topics, from literature and the arts to mathematics and big data.
- Now let’s shift from academic issues to the draft budget. How would you reallocate spending by category?
- First and foremost, I would increase spending at least by 0.5% of the GDP. Five hundred billion extra.
- This would take the public debt to 21%...
- There is nothing tragic about that. It’s normal. We can dig a little bit deeper into the National Wealth Fund. Let me remind you, during the 2008-2009 crisis we spent more than half of the Reserve Fund. It shrank from four trillion to 1.8 trillion rubles. This time, we’ve kept the National Wealth Fund intact by and large, although at the beginning of 2020 we complemented it with another 3.3 trillion. We should spend more, though not at one time. We should change the budget rule somewhat.
Incidentally, there are plans for increasing next year’s budget by 900 billion rubles as an exception. This will be done by means of extra borrowing, which is absolutely reasonable.
- And what would you say about the intention to raise taxes and excise duties?
- I’m very reserved about this. Negative, rather. Not to mention the fact that in 2018 the government promised the president to refrain from raising taxes for a period of six years. That concerned all taxes without an exception.
As far as excise duties are concerned, they can be adjusted for inflation every year. This is permissible. But not raised by 20% like those on cigarettes. There is a risk counterfeiting and smuggling will surge. It will become profitable again to bring in “grey” products. Our border is very porous, especially with EAEU countries, where excise duties are lower.
It goes without saying that this is a very hard time for the economy, but it is likewise true that very good resources have been accumulated. There are opportunities for borrowing. I would prefer to move in this direction.
The same is true of the government’s assistance to the population and businesses during the pandemic. Our support totaled about 3.9% of the GDP, including guarantees and tax breaks. I believe we might have spent another 1.5%-2% of the GDP on subsidies. We would have coped without any major problems. That would’ve been very decent and easy to compensate for and proportionate to the scale of the crisis as well.
- And how would you explain the fact that our economy has not been sinking as sharply as other countries? Some juggling of the numbers by the Russian Federal State Statistics Service?
- Well, statistics will have to be checked, too. For instance, economic growth in 2018 saw a three-fold upward revision…
Yet, there are objective reasons why the Russian economic slump has not been as traumatic as elsewhere.
First of all, our tourism and service sectors are much smaller. Meanwhile, they were the hardest-hit around the world during the pandemic. Their share is lower than in any European country, the United States or Canada.
Secondly, we have more mining and processing companies with non-stop production cycles. They never paused at all.
Thirdly, the crisis badly hurt small and medium-sized businesses. In this country, there are fewer of them than in other countries.
These factors help explain why the effects of the crisis have turned out to be milder.
Take industries in northern Italy, they were at a stand-still for two and a half months. In the meantime, even in Moscow, where the pandemic situation was the worst in all of Russia, construction sites paused just for a couple of weeks.
- Do you think another lockdown is possible?
- I don’t think a global quarantine is likely. Many countries will certainly avoid taking such measures. The pandemic isn’t as bad as some portrayed it to be, and public opinion has changed. It is better to keep working so as not to let the economy collapse altogether. This means, carry on working while observing precautions.
Also, the national healthcare services have been fine-tuned and gained experience. It is clearer now what measures should be taken.
- What changes has the COVID-19 pandemic caused to the Audit Chamber’s daily routine?
- In the spring, we moved 80% to telecommuting. Only those who participated in concrete audits or worked with classified information that cannot be taken out of the building continued to go to the office.
- Did you have to cancel many audits?
- No, we postponed some and held some others in a more concentrated, abridged form. Also, we had to verify extra payments to medical personnel, purchases of lung ventilators and the issuance of guarantees to stricken enterprises.
- Mikhail Mishustin said the economy made a narrow escape and it’s too early to take it easy.
- Yes, the anti-crisis plan remains in force. The tax deferments for companies that took serious hits will continue to be in effect until February 2021. More subsidies are being disbursed to the regions and benefits to doctors and to families with children are being extended.
I believe that the government is handling the situation well enough, although I am certain that more resources should have been utilized. I don’t have any complaints. The decisions that were made have been energetically and actively supplemented depending on what was happening in the economy and the country as a whole. In this particular case, Russia demonstrated that it was fighting against the pandemic just as well as other countries.
But you have to remember that the coronavirus has neither eliminated economic and ecological problems, nor the sanctions against Russia. The sanctions remain and they are harmful.
Even when we restrict the import of so-called sanction goods and start production at home, our companies’ losses still outweigh any favorable effects. Some gained, but others lost. But the key issue is the long-term consequences for Russia, since the inflow of modern technologies is limited. And this, regrettably, is very sensitive.
These days no individual country in the world is capable of producing absolutely everything. Progress is too fast. Cooperation is helpful. Countries exchange achievements and technologies. We, too, import some key goods and components, in particular, high-tech ones. In this respect, the sanctions on the import of such products are painful and result in the economy’s erosion over the long term. They don’t let us develop quickly enough. Russia’s labor productivity is now only half of that of the United States and two-thirds of that in European countries. Regrettably, this lag may get worse. It is already critical. We are not the most advanced ones and will have problems with catching up.
I often point to structural problems in our economy. How many companies in Russia are implementing technological innovations? What do you think?
- I remember you mentioned something like 8%.
- A new methodology has been put out since then. Now there are 20% of them.
- And Putin set the goal for bringing it up to 50%.
- In the meantime, the share has not changed for ten years… What are the hindrances to innovations? It is the lack of competition and the dominance of companies enjoying government preferences, which have no incentives to develop new products and technologies. In addition, modern regulatory legislation is needed. Usually, new laws follow, yet their goal is to anticipate and encourage development. Alas, the inadequacies of our school and university graduates still exist. That said, except for several elite universities, education is going downhill and that is a great problem. Rank-and-file universities in Russia’s regional centers are the ones that ensure labor productivity rates for the economy. Their quality of instruction (of engineering personnel in particular) is noticeably inferior to that of an average university in Eastern Europe.
- Are we being cocooned?
- This sort of problem does exist. International ties, student, teacher and top-notch exchange practices are helpful. Incidentally, China is making rapid headway in this sense. Branches of US and European universities are opening there. Our Moscow State University is present, there, too. Instruction is in Russian.
- Do international organizations work? Have their functions remained the same?
- The World Trade Organization is up to their necks in trouble. Many crucial decisions have been postponed. Some are blocked by Europe, which indulges in protectionism in favor of its own producers. Far more harm is caused by the trade wars that the United States has unleashed. America had spent decades campaigning for free trade. Now it restricts and suffocates it. China has built up far more muscle, so Beijing feels confident. It needs new markets and it is ramming past protectionist and customs barriers. The global centers of economic growth have changed. These are the new realities.
- Why have you stopped going to Davos?
- I was absent only from the two latest ones.
- And for how many years in a row had you flown there before that?
- Since 1994… You know, an opportunity to meet people is the most important feature of the Davos forum. Many top officials from major companies, experts and businessmen gather at one place for a whole week. The forum’s official program and panel discussion are of secondary importance. Certainly, there is an agenda and one can hear some spectacular speeches, but continuous meetings on the sidelines are far more important. This is mostly what made me go to Davos. Now, this interest has vanished.
There are many other conferences and world forums where I’m invited to as a guest or an economic expert.
Incidentally, many leading economists had visited Russia before the pandemic. For instance, the 23rd Congress of the International Organization of Supreme Audit Institutions (INTOSAI) in September 2019 brought together delegates from 169 countries. It was the largest conference in the organization’s history ever. We had several meetings, including one in the Kremlin, where President Putin was in attendance.
A few words about my first trip to Davos. We were there together with Putin, as St. Petersburg’s deputy mayors. It was then that I tried Alpine skiing for the first time. Before that I was pretty good at cross-country events…
- And you also play ice hockey, don’t you?
- I used to before. I had to stop due to some problems with my back. Now, I swim and do mountain and cross-country hiking.
- Is it true that in your younger days you worked as a part-time ice hockey coach to make some extra money?
- When I was a graduate student at the Institute of the Economy under the Academy of Sciences, I first taught at two universities. Mostly I held seminars. But soon I found out that the universities were paying less than an ordinary neighborhood housing and utilities office that sponsored a local children’s team. I cobbled together teams in Moscow’s Sevastopolsky district and held training sessions for boys in two age groups – seven- and eight-year-olds in one, and nine- and ten-year-olds in the other. We participated in the Golden Puck tournaments for kids and played home and away games. Vladislav Tretyak was at the opening ceremony of one of our matches. We were not acquainted then. I was still an ordinary graduate student when he was already a world sports star and an Olympic champion.
I was officially hired by the neighborhood utilities administration as a specialist for teenage affairs. The kids had been given sports gear and skates… Their parents would come to the matches to support our kids and thank their coach.
It was one of the most favorite times of my life.
- To make the long story short, you didn’t become a coach. Was there a chance for you to start some business of your own?
- After I leaving the civil service, I headed the Moscow Exchange’s observer council. I chaired the strategy committee of Sberbank’s council of observers. Also, I held seats on the boards of directors of a couple of other financial institutions. In general, I was making good money. But I realized that I would be no good as a businessman or top manager of a private company. No good at all! I find it far more interesting to be involved in public activities, or research and teaching.
This awareness brought me to the Center for Strategic Research, a think tank where for two years we analyzed and reviewed Russia’s development options. I believe it was one of the most important and brightest periods in my life. In fact, what happened to me can be called an internal reset. I learned a lot about modern models of management and development. I find it far more interesting than business.
- Find what?
- Analyzing and exploring the roads the country may take. Maybe, it will sound strange, but, apparently, I belong with the generation that had sincerely wished to make Russia successful. I can testify that when I was still choosing my future profession, I thought that the Soviet Union’s economy was going in the wrong direction and that something should be done to change it.
- But wasn’t it a dream of yours to become a pilot?
- I had such dreams prior to ninth grade. My father spent a long time serving in the Air Force. We lived among pilots. I rubbed shoulders with them every day. In Latvia and in Mongolia. My father did not fly himself. He was a communications specialist, an encrypting officer. A large part of my life was spent in Air Force garrisons.
True, the feeling of romanticism had existed up until a certain age. How could it have been otherwise? Each day, I would see MiG-17s taking off and landing.
Then I felt I might have other opportunities to choose from.
- In the Transbaikal Region, you lived in a town called Borzya. They say it was an awful dump. Nothing could have been worse.
- In those days it was a normal district center. A meat factory and a railway depot were the two main employers for the locals. You can also add a military garrison.
I don’t know what it is like today, but life did not seem dull or boring then. Certainly not. It was brimming with activity. We did not care about some insignificant everyday household problems. In Borzya, we first rented rooms from a private homeowner. For three months, we lived in a cabin without heating, which could also be used as a kitchen. It was livable only in the summertime. When the cold season set in, we moved to an abandoned house that we had repaired ourselves. New windows had to be put in. The house had a wood-fueled masonry stove. Another year passed that way.
- Weren’t officers’ families provided with housing?
- When my father was transferred there, there was nothing to provide! When a five-story apartment building was put up for the garrison, we moved there. On New Year’s Eve. The power supply was insufficient. The lights were dim. The water pressure in the pipes was not enough to reach the upper floors. During the winter, the temperatures outside often dropped to 40 below zero. And in the summer, we had to put up with searing heat. Those were the unavoidable features of this continental climate.
In Arkhangelsk, we were instantly provided with a two-room apartment, and in another 18 months, with a four-room one. It looked like a real palace to us. We even had doubts if we should move to Leningrad, since we feared that we wouldn’t have such great housing conditions there.
- Where was your own first apartment?
- When I got married, my mother-in-law agreed to help. The housing of my wife’s parents was divided in two.
- They say that one who experienced starvation as a child never feels he’s had enough to eat until the end of his life. You are rumored to have a large apartment in the downtown Moscow and large plots of land in Bakovka and Arkhangelskoye. All this property is astronomically expensive. Even a former government minister and Audit Chamber chief would be unable to afford it.
- In Bakovka, we have less than a hectare of land. I received it from the government in line with the established procedure. And respectively I paid for it in accordance with its cadaster value. And the apartment was granted to me by the presidential property department. I did not buy it.
- And what about Arkhangelskoye?
- I purchased that plot of land at a fair free market price upon retirement from the civil service, when my incomes were already very different. I was earning well enough.
All my real estate items have been declared. There aren’t any secrets at all.
I’ve always spent as much as I earned. I was one of those who established the rules. And I’ve strictly followed them.
You’ve got to choose: if you go to work for the government, you must be ready to abide by certain restrictions.
- This situation looks somewhat idealistic, don’t you agree?
- You are asking me about my principles that I follow in life. So I’m telling you what these principles are. I joined the civil service not for the sake of making money. It was my sincere desire to make something of importance for the sake of my country, to change the situation for the better; to get the wheels of a private-property based market economy turning. My generation succeeded in many respects, although we have not used all opportunities only to become stalled halfway. Old ideas, stereotypes and habits still prevail.
A new generation should take over. But for the time being managers from the old Soviet system cling tightly to their seats. In particular, in the public sector, although as a rule they have neither the capabilities nor the skills that a new economy requires. The entire government machinery must be invigorated more boldly.
- But on October 12 you will be 60, too, right?
- This number is driving me crazy! I cannot believe it. Deep down in my heart I still feel like I’m 30.
- It must’ve been at your own birthday party some ten years ago when you played jazz with Igor Butman, right? He played the saxophone, and you were on the drums.
- No, it was not at [my] 50th birthday celebration, but somewhat later. I went to the Krasnoyarsk Economic Forum. First, there was an ice hockey match between the Russian government’s team and a team of performing artists and entertainers. After the game, we all went to a restaurant. Igor and I were seated at one table. First, we had a little chat about music and then went to the musical instruments on the podium and improvised there for about two hours or so. It was a nice jam session.
We’ve been on friendly terms since.
Then at some jazz festival, Butman literally dragged me on stage and forced me to play with his group. Of course, I realized that I by no means match the level and standards. Igor did his best to help me out. I managed to stick to the rhythm, but clearly it was a primitive performance. Today’s rhythms and technique are far more interesting.
- And how did you celebrate your 50th birthday?
- I invited some friends. Putin and Medvedev were there, too. Putin then was Russia’s prime minister, and Medvedev at that time was the nation’s president.
Now, amid the pandemic it’s not very convenient to celebrate.
- What would make you leave the Audit Chamber?
- Why should I go? We have a six-year plan. The task is to create a new type of Audit Chamber on par the world’s best standards of public auditing. We want to become one of the most advanced agencies that use cybertechnologies in their day-to-day work.
We won an international bidding contest for auditing international organizations. We’ll start with UNIDO, an organization within the UN system responsible for industrial development to audit its budget.
- Will you be paid for that?
- The reward we’ve been promised is not big. Rather, it is a matter of prestige. Imagine Russia’s Audit Chamber being commissioned to audit a UN structure!
We’ve taken on a new responsibility. In 2021, we will take part in several bidding contests for auditing other international organizations. In some cases, we may be paid well enough.
In November, we are going to go to the organization’s head office in Vienna. The groundwork began a long time ago. The pandemic has created some problems, but in principle everything has been agreed on and the details have been taken into account. Perhaps, we’ll have to do distance auditing, but for now we hope for an onsite inspection.
- How much time will it take?
- I’ll spend several days there; some members of the team will be there two weeks, and some others for a month. We’ll be finished by New Year’s Eve.
- Everyone hopes that 2021 will be better. And you’ll have to say “No” less often.
- To hope for the best is human. Let’s wait and see…