Publication: Monitor Volume: 4 Issue: 154

A new scandal is brewing over reported tension between Sergei Dubinin’s Central Bank and Mikhail Zadornov’s Finance Ministry. In a August 6 article, Nezavisimaya gazeta charged that the Central Bank triggered a crisis on July 20 by withdrawing 8.7 billion rubles (US$1.5 billion) in funds from the Finance Ministry, which found itself unable to pay its daily bills. Zadornov wrote a letter to President Boris Yeltsin asking for help, a copy of which was reproduced in the newspaper. Zadornov and Dubinin made statements denying that there was any such crisis, and Zadornov threatened to take the newspaper to court. However, Nezavisimaya gazeta returned to the fray in its August 8 edition, reproducing a Central Bank document which alleged shows the money transfer, and pointing out that the official denials do not contradict the facts in the newspaper’s story. The paper also charged that back in May, the bank provoked the collapse in the financial markets by selling ten billion rubles of treasury bonds.

There have long been rumors about tension between the bank and the finance ministry. Last year, the State Duma tried and failed to get its hands on the Central Bank’s profits, and the bank has repeatedly rebutted efforts by the Duma’s Auditing Chamber to review its books. The newspaper offered various possible reasons for the Central Bank’s withdrawal of the money on July 20. For example, having learned that the IMF would announce its approval of the bailout package to Russia the next day, the bank may have wanted the money in order to buy stocks, predicting correctly that Moscow share prices would rise following the IMF announcement. Another theory sees the move as part of the bank’s campaign to have the bailout funds transferred directly into its own account and not sent to the finance ministry, as was the case with most previous IMF loans.

Having an independent Central Bank to manage monetary policy is one thing. But many features of the Russian Central Bank’s role are peculiar by international standards. It plays an unusually prominent role in the market for government securities, for example. According to the latest Goskomstat data (for February 1998), foreigners bought 28 percent of state bonds (GKOs and OFZs) and 60 percent were bought by the bank sector. Of the latter, only 18 percent were bought by commercial banks, 31 percent by the state-owned Sberbank and 49 percent by the Central Bank. Thus nearly half of the state’s debts are being bought by state agencies. This obviously raises questions about opportunities for profiteering and bureaucratic rivalry.