By Peter Finn
Washington Post Foreign Service
Wednesday, December 28, 2005

MOSCOW, Dec. 27 President Vladimir Putin's top economic adviser resigned Tuesday, six days after declaring at a news conference that Russia "is no longer a democratic country."

Andrei Illarionov, 44, had established a reputation as a maverick within the Kremlin. He frequently criticized the state's increased involvement in the economy, including the dismantling of the Russian energy giant Yukos and the acquisition of some of its prime assets by a state-controlled company.

At last Wednesday's news conference, an annual event at which Illarionov has often engaged in rhetorical fireworks, he expanded his economic critique to question the country's level of political freedom.

"This year Russia has become a different country," said Illarionov, citing a recent report by the U.S.-based Freedom House that documented the expansion of Kremlin powers. "It is no longer a democratic country. It is no longer a free country."

The remarks sparked speculation that Illarionov would be forced out. He is despised by some Putin advisers who favor state intervention.

Announcing his resignation Tuesday, Illarionov said the most important reasons were "the change in economic policy and economic model, the change in the political regime, and the emergence of a corporatist model of the state."

"Six years ago, when I took this position, I was planning to create conditions to increase economic freedom in Russia," he said. "The situation has radically changed, and there is no longer room to follow a policy of economic freedom."

The Kremlin reported later Tuesday that Putin signed a decree dismissing Illarionov, the Associated Press reported.

One of Illarionov's aides, reached by phone, said the economic adviser didn't wish to comment further.

Vladimir Pribylovsky of the Panorama research institute in Moscow called the resignation inevitable: "He was forgiven for his economic criticism, but when he said the country was no longer free, the president could no longer put up with it."

Illarionov holds a doctorate in economics from Leningrad State University and was an adviser to then-Prime Minister Viktor Chernomyrdin before being dismissed in 1994.

In 1998, the economist warned publicly that a debilitating financial crisis was about to hit Russia, at a time when other senior officials denied such a danger existed. Shortly afterward, the country devalued its currency and defaulted on much of its debt.

In 1999, Illarionov helped write an economic program for Putin, who was about to succeed Boris Yeltsin as president, and was taken on as economic adviser.

Illarionov "is competent in economics, you can't deny this, but, hearing his remarks and the political judgments that he made, I have always been stunned by how much anger and negative emotions he harbored, and this is his main problem," Chernomyrdin, now the ambassador to Ukraine, told the Russian news agency Interfax.

Illarionov had already been under pressure. In January, he was removed as Russia's envoy to the Group of Eight, the world's seven leading industrialized nations and Russia, after he criticized the sale of Yuganskneftegaz, a Yukos unit that pumped 1 million barrels of oil a day. It was taken over by Rosneft, a state-controlled enterprise, after being purchased by an unknown front company.

Last Wednesday, he criticized Rosneft's performance in managing the asset. He said that "a staggering drop in proceeds . . . merits being entered in the book of anti-records."

Illarionov went on to call a number of takeovers of private entities by state-controlled companies "swindles of the year." These included the acquisition of privately held Sibneft by the state-controlled energy giant, Gazprom. Putin had praised that deal, but Illarionov said it was not a real market transaction because only one buyer was permitted to bid.

In contrast, he praised the Ukraine government's sale of Krivorozhstal, a steel plant, to the Mittal Steel Co. of Germany for $4.82 billion. The enterprise had first been awarded to the son-in-law of former president Leonid Kuchma for $800 million in a bidding process that was widely criticized as fraudulent. After President Viktor Yushchenko came to power, he ordered the plant sold again.

Relations between Russia and Ukraine have been strained since Yushchenko defeated a candidate openly backed by Putin. Illarionov's praise of the Ukrainian government's economic policies was seen here as sure to infuriate some figures in the Kremlin.

At last Wednesday's news conference, Illarionov criticized what he called the "selective use of energy as a weapon outside Russia." Gazprom has said it will dramatically increase prices for a number of countries, including Ukraine, Georgia and Moldova, all of which have adopted pro-Western policies in the last two years.

Illarionov said Tuesday that he planned to stay in Russia, but didn't say what he would do. Among Russia's political parties, his natural ideological home would be in the Union of Right Forces, which shares his market-oriented philosophy. But Illarionov and the party's leader, Anatoly Chubais, have frosty relations.

"I hope that there will be something to do in Russia," Illarionov said. "I'm planning a vacation and have been invited to a conference."