Publication: Monitor Volume: 5 Issue: 148

The first of seven tranches from the US$4.5 billion loan which the International Monetary Fund (IMF) agreed to lend Russia was transferred yesterday. The installment, worth US$640 million, was used to pay off part of Russia’s old debts to the IMF, worth about US$18 billion. Russia was to have paid the Fund US$808.4 million in July and another US$520.4 million in August (Russian agencies, August 1).

Following the IMF’s decision last week to resume loans to Russia, a Moscow newspaper published conclusions from the as-yet-unreleased audit demanded by the fund of FIMACO, the obscure Channel Islands asset management company in which Russia allegedly kept billions of dollars of its hard currency reserves from 1993 to 1997. The auditors, PricewaterhouseCoopers, found that Russia’s Central Bank had kept a separate set of books for transactions involving FIMACO and used parts of its reserves to extend credits to Russian commercial banks. In 1994, according to the audit, the bank made US$300 million of such loans. The auditors also found that it had used both funds from both its hard currency reserves and IMF loans to speculate on the Russian treasury bill market, and had kept the returns from those operations off the books. In 1996, for example, the Central Bank funneled a total of US$1.2 billion into GKOs, the now defunct Russian treasury bill, which went to FIMACO and Evrofinans, a firm part owned by FIMACO and Eurobank, a Central Bank subsidiary which directly owns FIMACO (Moscow Times, July 31).

The returns from GKOs in 1996 were very high, and some media have speculated that they were used to help finance President Boris Yeltsin’s 1996 re-election campaign.

Earlier this month, Russian Central Bank Chairman Viktor Gerashchenko–whose first tenure as Central Bank chief was in the early 1990s, when FIMACO was created–claimed that the PricewaterhouseCoopers audit had found no evidence of significant illegal activity involving FIMACO (Russian agencies, July 5). In an April 26 letter to the IMF, Yuri Chaika, then Russia’s acting prosecutor general, wrote that the Central Bank had violated laws in its dealing with FIMACO (Moscow Times, July 6). Last week, Chaika was reportedly transferred from the Prosecutor General’s Office to the Security Council, Yeltsin’s powerful advisory body.

Prior to the IMF’s decision to re-start its program of credits for Russia, the fund’s deputy director, Stanley Fischer, admitted that Russia had “lied” to the IMF about FIMACO. Fund officials have repeatedly stated that while they knew that the Central Bank might resort to putting funds offshore, they knew nothing about FIMACO itself. According to independent State Duma Deputy Nikolai Gonchar, previous Central Bank audits–which had been shown to the IMF–had explicitly expressed reservations about the Central Bank’s operations involving FIMACO.