Kudrin – On the Money

Maria Filmanovic & Lili Bayer were impressed by the openness of Alexey Kudrin’s recent talk at the Blavatnik School of Government at Oxford University.

Kudrin Medvedev

‘Resign when you disagree in principle with a decision.’

This was Alexey Kudrin’s advice for aspiring public servants in a talk at Oxford University, recalling his own departure from office in 2011. The former Russian Finance Minister thoughtfully discussed the Stabilization Fund he built during his 11 years in office, the shale gas revolution, and his service in the St Petersburg Administration.

Kudrin’s achievements as Finance Minister between 2000 and 2010 are undeniable – taxes decreased from 53% to 15%, and overall public debt from 50% to just below 10% of GDP. While critics are quick to point to the post-2000 oil price surge, this neglects the role of the structural reform process initiated by the Putin administration in 2000. Hardening budget constraints was a choice, made in order to ‘break the vicious circle of tax delinquencies.’ Kudrin recalled that Gazprom used to pay 30% of its taxes in money, 20% in kind, and 50% in IOUs, and that the state-owned gas giant was forced to take a loan when the government obliged it to repay the full amount of its taxes in money.

Despite these drastic fiscal changes, Kudrin remains concerned about the negative impact the oil bonanza has had on Russia’s long-term macroeconomic position. The tighter fiscal policy coupled with energy revenue increases allowed the reconstruction of Russia’s foreign currency reserves in 2001, and led to a slow real appreciation of the rouble – the first symptom of ‘Dutch disease.  At the time, this appreciation threatened the non-resource sectors’ export competitiveness in a period of macroeconomic stabilisation, and the government decided in 2004 to create a fund of oil money to guard against inflation.

By working closely with the Ministry of Finance, the Central Bank of Russia could sterilize its money supply by purchasing foreign currency reserves on behalf of the Stabilisation Fund maintaining a steady exchange rate. Yet since 2004 the currency has appreciated against the dollar. Kudrin reflected that ‘[the government] should have saved more of Russia’s oil revenues,’ but convincing elites that delaying spending commitments was the key to long-term stability was ‘the greatest challenge’ he faced.

Though avoiding direct reference to Putin or Medvedev, Kudrin explained that in Russia a public servant’s role is to defend his position in an environment where there is little scope to criticise one’s superiors. Kudrin is one of the few Kremlin insiders to have publicly disputed official policy while retaining clout within the government’s inner circles.

Asked about his role in the turbulent weeks following December 2011 Parliamentary elections, Kudrin emphasised that, he was not an opposition leader. However, since there were both opposition activists and government officials willing to listen to him, he tried to mediate between the two sides. Most importantly, Kudrin disclosed that despite the government’s ultimate decision to crack down on the opposition, the government had considered dialogue as a mode of resolution.

According to Kudrin, this dialogue could only take place in Russia if a strong new party with weight emerges to challenge the establishment. While critical of the weakness and disorganised Russian opposition movement, Kudrin appeared to support the creation of new parties or coalitions which could grow to be serious rivals for United Russia.

This talk was given at the Blavatnik School of Government, University of Oxford in March 2013.


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