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Moscow Times
March 26, 2002
Mighty Hercules Is Purged
By Boris Kagarlitsky
On March 20, the State Duma accepted the resignation of Central Bank head Viktor Gerashchenko. This act not only marked the departure of a man who has played a dominant role in the banking sector for most of the past decade, it also means the departure of the last openly Keynesian central banker in Europe -- maybe even the world.
Gerashchenko has always been a hate figure for the neo-liberals who have already made him resign twice before. The first time was while the Soviet Union was still in place and he was seen as an obstacle to economic liberalization. Once the "traditionalist" head of what was then called the State Bank of the Soviet Union was forced out, hyperinflation followed.
Gerashchenko was called back to the Central Bank in 1992, but soon was declared an enemy of reform. His opponents saw him as an inflation-loving central banker. In fact, no central banker loves inflation -- Gerashchenko simply retained the strange and unpopular idea that people are more important than money. Thus, each time there was a choice between lowering inflation and attending to social needs, he preferred to do the latter.
In 1994, he was removed once again and replaced by a monetarist team, which led the country to default and devaluation in 1998. Gerashchenko was then brought back, and proceeded to stabilize the currency and create the conditions for a massive payment of wage arrears that had accumulated during the period of neo-liberal management. Furthermore, he has never been involved in any financial scandals.
That is why Gerashchenko was dubbed "Hercules." Indeed, for many years his job was to clean the Augean Stables of the mess left by neo-liberal economic policies. Now, however, Hercules has himself been purged.
The irony of the situation is that a few days before Gerashchenko's removal, the government for the first time appointed a Keynesian economist, Mikhail Delyagin, as adviser to the prime minister. The appointment is strange, to say the least, if we take into account the complexion of the government and its policies. Over the past two years Delyagin has been one of the government's most principled critics, so for him to be given such a job something obviously must be wrong -- either with the government or with Delyagin.
The appointment could be viewed as an acknowledgement by the regime that its course is leading nowhere. In such circumstances, however, the logical step would not be a change of advisers, but for the government to resign.
The most plausible explanation is that different groups in the president's entourage have been pursuing divergent lines. While the St. Petersburg liberals have been systematically seizing key positions in Moscow, Mikhail Kasyanov has been trying to dissociate himself from liberal extremes. His moves can be characterized as an attempt to pursue a new course without changing the old one. And while Gerashchenko was at the helm of the Central Bank, the prime minister had in him an ally and counterbalance to the St. Petersburg group.
Irrespective of how relations between the Central Bank and the government now develop, there will have to be some corrections made to economic policy. Exporters are complaining of protectionism by Western governments, but Russia can do nothing to oppose this apart from responding in kind with its own protectionist measures -- which per se will not solve the problem.
The choice we are faced with is either to raise the population's standard of living and re-orient industry to the domestic market, or devalue the ruble, thereby reducing living standards once again and increasing exporters' profits.
Undoubtedly, Delyagin will support the former course, and the St. Petersburg liberals in coalition with exporters will support the latter. However in the final analysis it is the Central Bank's decision. The new head, Sergei Ignatyev, has promised not to change the course set by his predecessor. And indeed, the ruble exchange rate has not undergone major change in the week or so since Gerashchenko's departure. The Central Bank is in good shape and foreign debts continue to be serviced in full. However, this fiscal well-being can last only as long as the economy continues to grow.
The early months of this year have demonstrated the futility of trying to beat inflation. Gerashchenko was one of the few who, in the words of Charles de Gaulle, understood that sometimes you should learn to live with problems rather than fighting them.
Boris Kagarlitsky is a Moscow-based sociologist.
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