Publication: Monitor Volume: 6 Issue: 195

German Gref, Russia’s minister of economic development and trade, confirmed yesterday that that the government had already approved a timetable for removing Central Bank capital from both Sberbank and Vneshtorgbank and from its foreign subsidiaries. This follows a statement the previous day from Prime Minister Mikhail Kasyanov’s spokeswoman, who announced that the Central Bank would lose its foreign subsidiaries, including Moscow Narodny Bank in London and Singapore, Eurobank in Paris and Ost-West Handelsbank in Frankfurt-am-Main, Germany, its 55-percent stake in Sberbank, the state saving bank, and its 99-percent stake in Vneshtorgbank. The Central Bank will give up its foreign subsidiaries by January 2002, Vneshtorgbank by January 2003 and Sberbank by 2005 (Russian agencies, Moscow Times, October 19). Since the August 1998 collapse of the Russian currency and financial system, the International Monetary Fund has pushed Russia’s Central Bank to give up its foreign subsidiaries, some of which were involved in the FIMACO scandal, in which the Central Bank placed more than US$50 billion from its hard currency reserves in an obscure offshore Channel Islands asset management company over five years. The FIMACO scandal and the August 1998 collapse also focused attention on the high salaries and benefits packages enjoyed by Central Bank employees.

Gref stressed yesterday that the government does not want to infringe on the independence of the country’s Central Bank. Yet the Kremlin’s announcement that it plans to end the Central Bank’s control of its foreign subsidiaries, Sberbank and Vneshtorgbank, follows President Vladimir Putin’s suggestion that the Central Bank be transformed into a “federal state institution,” a position similar to that held by the Communist Party of the Russian Federation faction in the State Duma, which is proposing amendments to the law governing the Central Bank that would reduce the bank’s independence (see the Monitor, October 13). All of this has led some observers to worry that the government plans to turn the Central Bank into a government-controlled institution, which could result in inflationary monetary policy and a weakening of the ruble. Indeed, former Finance Minister Mikhail Zadornov wrote this week that while the Central Bank should be audited more closely, ending its independence would undermine not only Russia’s economic stability, but also its political stability. Zadornov argued that hobbling the Central Bank would be dangerous given the degree to which the Putin administration has already moved toward centralizing power. The former finance minister pointed to the Kremlin’s moves to reduce the role of the legislative branch and the power of the regions, and to bring the mass media under control (Moskovskie novosti, October 17).