23.02.09

Moscow Mayor Yuri Luzhkov explains that in his view, the main reason for the crisis in Russia is the state's economic policy: monetarism. He says that nationalization is one of the most important methods of countering what has happened, and proposes revising the role of major property-owners in the economy.

Question: How would you describe what is regarded as an economic crisis in Russia?

Yuri Luzhkov: We are experiencing some very serious complications in the real sector of the economy, and one of the main reasons for this is the monetary policy of our authorities. It might have seemed that no crisis could threaten Russia - with its vast reserves of gold and foreign currency, its steady budget surplus, and its large stabilization fund. Yet our share prices have crashed to only a third or a fifth of their pre-crisis values, while Europe's share prices have dropped by only 30-50%.

In Russia today, the crisis is primarily determined by the situation in business. It wasn't the state that borrowed $570 billion from the West - it was private companies and banks. And now that money has to be repaid.

Unable to find cheap credit in Russia, our private companies rushed to the West for loans - using them to buy land, yachts, soccer clubs, and moribund enterprises. But why did our companies rush to the West for credit? Because Russia's interest rates were much higher.

Finance Minister Alexei Kudrin decided to save money and accumulate it in a reserve fund - the stabilization fund. But the money in this fund wasn't doing anything to develop our state's economy. And those are the reasons for the crisis.

Who should make the decision to abandon monetarist economic policies?

Yuri Luzhkov: The authorities, of course. The president. The prime minister.

And what will happen if we don't abandon monetarism?

Yuri Luzhkov: Mass bankruptcies.

But bankruptcy just means a change of ownership.

Yuri Luzhkov: No. It won't be a change of ownership - because when the bank that provided a loan decides to bankrupt an enterprise, it will get only a shell with the company's name, with everything of value taken out of it.

And what should the state do in order to prevent this?

Yuri Luzhkov: It might seem that the state should tell the private sector: you borrowed abroad, so you have to repay those loans. Outwardly, such a stance would be fair. But the problem is that private companies in Russia are active in areas of strategic importance to the state. How could the state stand by and watch calmly while Russian Aluminum struggles to repay its debts, when that company is in a strategically important sector, so the problem concerns national sovereignty.

We must move away from monetarism. We need to move to a form of capitalism that would establish a state with a full-fledged domestic market, including the production of our own products.Look at what we have now. We import about 90% of our pharmaceuticals. This is unacceptable!

We have been focusing on money, not the real sector of the economy - that's what monetarism means!

And what are you proposing as an alternative?

Yuri Luzhkov: Strange as this may sound, I think the state should nationalize a number of sectors of the economy. Not in order to pursue state capitalism, but in order to minimize the pain of surviving this period, and restore those sectors to a normal financial condition (with normal technology, if possible) before selling them.

Once stability is restored, the state must sell off those assets - but not at the kind of prices that were once paid for Norilsk Nickel and similar companies. The prices should correspond to the real value of an enterprise or sector. We need an urgent decision on what to do with the construction companies: subsidize their debts via the credit system and let them continue operating, or make them state property, to be sold off later.

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Source: Kommersant