Publication: Monitor Volume: 6 Issue: 239

Prosecutor General Vladimir Ustinov has promised to take charge of a probe into whether the Central Bank violated the law in giving a so-called “stabilization credit” to SBS-Agro, the bank founded by the formerly powerful oligarch Aleksandr Smolensky. Last week, the Audit Chamber–the state agency tasked with monitoring the use of state budget funds–announced that it had discovered that the Central Bank had committed “serious violations” in granting SBS-Agro the stabilization credit in October 1998. The 5.86 billion-ruble credit was worth about US$345 million at the exchange rates prevailing at the time. In a December 20 meeting with the Federation Council, the upper house of the Russian parliament, Ustinov said that the Prosecutor General’s Office would take over a probe into the circumstances surrounding the granting of the credit that the Moscow city prosecutor’s office had been conducting (Kommersant, December 21).

Following the August 1998 financial crisis, SBS-Agro, which has a network of rural branches, essentially defaulted on its depositors. After this, Viktor Gerashchenko, who had just become head of the Central Bank, agreed to extend SBS a stabilization credit. Forty regional governments essentially acted as a collective guarantor for the Central Bank loan, and at the end of last month, the Central Bank filed suit in Moscow against those regional governments to get the credit repaid. SBS-Agro’s stabilization credit has been the subject of controversy, particularly because it has yet to repay hundreds of thousands of depositors whose savings were frozen following the August 1998 meltdown. What is more, a newspaper alleged last year that SBS-Agro used funds from the stabilization credit to pay off its debts to International Moscow Bank, which Gerashchenko headed until his appointment to the Central Bank (see the Monitor, March 1, 1999).

Given that the controversy surrounding the granting of a stabilization credit to SBS-Agro is hardly news, some are asking why it has suddenly flared up again. The favored theory among observers in Moscow is that certain influential forces are trying to engineer Gerashchenko’s removal. Indeed, one observer noted that it was Krasnodar Krai Governor Nikolai Kondratenko who asked Prosecutor General Ustinov to take control of the probe into the stabilization credit, and that Kondratenko has been close to the tycoon Boris Berezovsky since the latter was secretary of the Kremlin’s Security Council and frequently visited southern Russian and the North Caucasus. According to this theory, Berezovsky or his heir presumptive, Roman Abramovich, may be trying to thwart Gerashchenko’s plans to transfer control over the Central Bank’s foreign subsidiaries to Vneshtorgbank, a state-controlled bank Gerashchenko controls. Various power brokers would reportedly like to privatize the Central Bank’s foreign subsidiaries. More generally, Russian exporters–including the country’s still-powerful oil barons–and the banks they control are said to be unhappy with Gerashchenko’s monetary policy, which has resulted in a strong ruble (, Kommersant, December 21). Finally, it is possible that Putin himself is seeking to replace Gerashchenko with his own man. Rumors earlier this year had it that Putin was considering replacing Gerashchenko with Vladimir Kogan, the founder of Promstroibank-St. Petersburg and a long-time associate of the Russian president (see the Monitor, October 13).