Publication: Monitor Volume: 8 Issue: 54

Viktor Gerashchenko’s apparently forced resignation as head of the Central Bank was in fact his second such departure: He first headed the Bank from 1992 to October 1994, when he was replaced by Sergei Dubinin in the wake of the “Black Tuesday” ruble crash, whom he was brought back to replace after the August 1998 financial crash, with a term set to expire in September of this year. Whatever the proximate cause for Gerashchenko’s second and undoubtedly last resignation as Central Bank chief, however, it had long been predicted by a number of observers. Not only had he come into the conflict with the Duma and the government over the proposed changes to the Central Bank law, but he had also come under increasing criticism over his monetary policy. President Vladimir Putin’s economic adviser, Andrei Illarionov, said in late February that the Central Bank policy had kept the ruble’s value too high over the previous eighteen months and that, if the economy’s slowing growth rate and flagging competitiveness were to be reversed, the currency needed to be “slightly devalued” (Reuters, March 1). Perhaps more significant, Gerashchenko was heavily criticized for failing to reform Russia’s anemic, uncompetitive and opaque commercial banking sector, which has remained in tatters since the August 1998 financial crisis. Gerashchenko opposed an overhaul of the sector, and while he and Prime Minister Mikhail Kasyanov did sign a bank reform plan last December, critics said that the plan was both vague in its wording and sluggish in its timetable (Moscow Times, January 29).

In addition, the Central Bank–having been at the center of a major scandal in 1999, when it was revealed that it had, over five years, funneled US$50 billion of the nation’s hard currency reserves through the Financial Management Company (FIMACO), a Channel Islands-based firm–raised eyebrows again last December. Russian media reported then that the Central Bank had printed 15 billion rubles (US$500 million) that the state’s Vneshtorgbank had then loaned to Gazprom to help the state-controlled natural gas monopoly pay its taxes (see the Monitor, January 10).

It is no surprise, then, that a number of leading politicians and members of the financial community welcomed Gerashchenko’s departure. Aleksandr Zhukov, chairman of the State Duma’s budget committee, said he hoped that the change of leadership at the Central Bank would make that institution “more effective and transparent.” Former Finance Minister Boris Federov, who was Gerashchenko’s nemesis during the early 1990s and once famously called him “the world’s worst central banker,” said he had not changed his view, adding: “This resignation came ten years too late” (Gazeta.ru, March 15).

But perhaps the most compelling explanation for Gerashchenko’s resignation is that the Putin administration has made it a top priority to subordinate the kind of state-within-the-state that the Central Bank became under both Gerashchenko and Dubinin (other examples include Gazprom and the Railways Ministry). Thus it is logical that Gerashchenko, who has been a high-profile official since he ran Gosbank, the Soviet state bank, will be replaced by Deputy Finance Minister Sergei Ignatyev–a man described by one observer as a “high quality, top-class accountant without strong financial views” who was picked to become “the translator and meticulous executor of others’ financial views” (Izvestia.ru, March 17). While former Economics Minister Aleksandr Shokhin, among others, described Ignatyev as being close to Deputy Prime Minister Aleksei Kudrin, who is also finance minister, the newspaper Vremya Novostei cited anonymous sources in the Finance Ministry as saying that Ignatyev was “absolutely loyal to both the government and the president” (Vremya Novostei, March 18). Like Putin and Kudrin, Ignatyev hails from St. Petersburg.

Perhaps the best description of the significance of the changes at the top of the Central Bank came from the political analyst Igor Bunin. He described them as representing “above all a continuation of the creation of a monocentric system of administration [and], more widely, power,” adding that “institution after institution are to all intents and purposes falling under the president’s influence” (Gazeta.ru, March 15).