updated 12/29/2004 10:06:21 AM ET 2004-12-29T15:06:21

Andrei Illarionov, the outspoken senior economic adviser to Vladimir Putin, Russia's president, said on Tuesday that the sale of Yuganskneftegas, the main production asset of Yukos oil company, was the "scam of the year" that demonstrated "the lack of rules" in Russia.

In one of the most stinging attacks on the policies of his boss, Mr. Illarionov said the past year had marked "a complete change of the model of economic and social development", illustrated by the destruction of "the best national oil company Yukos".

No stranger to controversy, Mr. Illarionov made his remarks at a press conference entitled "2004: The Year of the Great Break" a definition usually applied to 1929, a notorious date in Russian history that marked the end of private enterprise and the launch of Stalin's mass collectivization that led to the deaths of millions. Mr. Illarionov said Russia had been transformed. "The choice has been made. We live in a different country in economic, political, ideological and other terms."

He said Russia had moved to an "interventionist model of economic development, with dramatic interference from the state" and from its "utterly incompetent officials some of whom have nothing to do with [the] economy". Mr. Illarionov, repeating criticism he has made in recent months, said Russia's economic situation had deteriorated despite favorable terms of trade, including high oil prices.

He said substantial changes had also occurred in Russia's foreign policy: "Rather than being a potential ally of democratic countries, we have witnessed a cool-down in the relationship with many countries, if not the start of a cold war, which naturally leads to the country's isolation in the world and the worsening of our foreign political position."

Mr. Illarionov criticized the murky auction of Yuganskneftegas, which was first sold to an unknown company that later appeared to be a front for the state-owned Rosneft oil company. He said the process deserved the title "scam of the year".

"So far we have seen these [scams] performed by street tricksters. We now see companies 100 percent owned by the state engaging in the same techniques.

"This case has clearly shown that there are no rules of the game, that the rules are constantly changing depending on [someone's] current interests."

Yukos shares fell 24 percent on Tuesday after the company missed payment on a loan and Standard & Poor's, the credit rating agency, cut its rating to default grade.

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