Publication: Monitor Volume: 4 Issue: 232

Last August’s decision by the Russian government, headed by then-Prime Minister Sergei Kirienko, to freeze debt payments and to allow a large devaluation in the ruble, remains controversial, and the details of exactly who made the decision remain unclear. In an interview published today (December 16) Boris Fedorov– head of the State Tax Services under Kirienko and then, briefly, deputy prime minister–named those involved in the decision: Kirienko; Sergei Dubinin, then head of the Central Bank, and his deputies, including Sergei Aleksashenko; Finance Minister Mikhail Zadornov and his deputy Oleg Vyugin; and Anatoly Chubais, then President Boris Yeltsin’s liaison with Western lending institutions, and former acting Prime Minister Yegor Gaidar.

Fedorov said that while he had no part in the decision and was not asked for advice, he had heard about the impending decision via the rumor mill and, several days before it was officially announced, wrote a two-page memorandum saying that GKOs–Russia’s T-bills–should not be touched. This, he said, provoked a sharply negative reaction from Dubinin and Aleksashenko. Fedorov said he also met in Moscow with John Odling-Smee–the IMF official who negotiated the fund’s multibillion-dollar bailout package last summer–and was left with the impression that Odling-Smee, and thus the IMF as an institution, knew about the impending default-devaluation and supported it.

In the interview, Fedorov said it was already clear in December 1997 that the ruble exchange rate “had begun to depart from reality,” and that the Central Bank had concealed this fact. Fedorov said that by May of this year, when returns on GKOs had become astronomically high, the government should have stopped issuing more of them, lowered reserve requirements for Russian banks in order to ease pressure on them, and begun to devalue the ruble gradually.

Fedorov’s critique echoes one made by economist Andrei Illarionov in July, about a month before the financial meltdown. Illarionov warned that Russia was technically bankrupt and would have to devalue the ruble by 50 percent. He also said the Central Bank had squandered reserves after receiving promises of US$22.6 billion in aid from the IMF. Following Illarionov’s demarche, then-Central Bank chief Dubinin suggested the economist had a personal financial interest in devaluing the ruble.

In his interview published today (December 16), Boris Fedorov said that at the time of these decisions the government had no economic specialists. “Even Anatoly Chubais–he’s powerful as a manager, but is not a macroeconomist,” Fedorov said. “The policy was simple: Take the next helping of credits, get along for another three months and so on. The IMF was somehow persuaded, and it, as usual, gave money.”

Fedorov served as finance minister under Gaidar, and his political movement–“Forward, Russia!”–has signed on to the center-right political coalition recently created by Gaidar and Chubais. Nonetheless, he claimed in his interview that he was never a “Gaidar-ite,” and complained about always being identified as one in the press (Kommersant daily, December 16).