Strongman, The

Illarionov as his chief economics adviser and later as his ‘sherpa’, or representative, to the G8 group of leading industrial nations.
    By May the Centre’s reform plan was almost ready, and it turned out to be, in Gref’s words, ‘ultra-liberal’. ‘If we set the private sector free, we could see good growth,’ said Kudrin. As the work neared fruition they produced a thick volume – far too dense to be presented to the acting president. As they had no experience in producing slide presentations they brought in a top consultancy, McKinsey, to help them. ‘We spent a week at their Moscow office,’ says Gref, ‘putting together a short version for public presentation and a more professional version to show to ministries and departments explaining what they would have to do.’
    On 5 May, two days before Putin’s inauguration, the team went to his Sochi residence to give him a ‘full immersion’ in the project. The young reformers were buzzing with excitement. ‘I was euphoric then,’ said Kudrin, ‘because it was all going according to plan.’ From morning till night they held sessions, interspersed with meals and walks in the warm sunshine. The economists talked through every point with Putin, who requested more work to be done here and there but approved the general thrust. It became known as the ‘Gref Plan’. Implementing it was to prove even harder than writing it.
    Privatising the people’s land
    Over the coming years the Gref Plan transformed many aspects of economic life. Personal income tax was reduced from as much as 30 per cent to a flat rate of just 13 per cent. Corporate tax went down from 35 to 24 per cent. A new land code made it possible to buy and sell commercial and residential land – for the first time since the communist revolution of 1917. There was a new legal code, measures to curb money laundering, and an attempt to break up some of the great state monopolies: electricity production was split off from the supply network, for example.
    The income tax reform was needed because millions of Russians, whose wages were already miserly, simply avoided paying, as the rates were crippling. The same was true of company taxation: some 80 per cent of businesses were avoiding paying taxes. Gref’s proposal of a single, low income tax rate for everyone, and a much-reduced company tax, was audacious. The idea was to lower the rates but increase collection. But if people continued not to pay, the state could find itself with an even bigger hole in its budget. The point was not lost on Putin. Gref recalls a particular meeting that he and Kudrin had with him.
    ‘The president asked us: “Are you sure that our total tax revenue isn’t going to decrease if we lower taxes?”
    ‘We said: “Yes.”
    ‘He asked: “What if you are wrong?”
    ‘I said: “Then I will resign.”
    ‘“I’m sorry,” said Putin, “but I am not going to approve your plan on that basis! You haven’t thought this through. What makes you think your resignation is somehow going to make up for all the money we are going to lose from the budget? Politically, the one doesn’t compensate for the other.” ’ 4
    Gref and Kudrin went away, did their sums once more and re-presented their plan to Putin. This time he agreed.
    The International Monetary Fund was less happy. ‘At that time we were still working closely with the IMF mission here, and they refused to approve our plans,’ says Gref. ‘We had difficult meetings in the residency outside Moscow. Then we said to the IMF, “Thank you very much for your advice, but we are still going to lower taxes.” ’ The IMF subsequently left the country. But Gref describes the reform as ‘the key, correct decision, which allowed our economic growth to take off’.
    The proposed land reform was even more contentious – this time because it affronted millions of communists and others who believed that land ought to belong to ‘the people’. Yeltsin had never dared to oppose them. As Gref prepared to present his Land Bill to the State Duma thousands took to the streets with red banners and anti-capitalist slogans.
    At the last minute the government made a few concessions, tightening the regulations regarding the sale of agricultural land, but it made no difference. There was an uproar in the Duma as Gref was asked by the Speaker to take the floor, to present his bill. Deputies from the Communist Party (who had a quarter of the seats) swarmed around him to