Publication: Monitor Volume: 5 Issue: 135

Prime Minister Sergei Stepashin and Central Bank Chief Viktor Gerashchenko yesterday signed a memorandum approved by the International Monetary Fund (IMF) on Russian economic policy for the remainder of 1999. The signing of the document, which was negotiated with the IMF, means it is virtually certain that Russia will soon begin receiving installments of a US$4.5 billion IMF loan package. Mikhail Zadornov, Russia’s chief IMF negotiator, said yesterday that he was fairly certain that Russia would soon start receiving the tranches, which will each be worth US$630 million and be spread over seventeen months (Russian agencies, July 14). For his part, IMF Managing Director Michel Camdessus has reportedly decided to recommend the release of the US$4.5 billion loan to ensure that Russia does not default on earlier loans from the Fund (Washington Post, July 13). Russia has already paid US$4.5 billion on its foreign debt this year, and must pay another US$4.5 billion before year’s end.

The IMF, meanwhile, has not yet reacted to charges, made by State Duma Deputy Nikolai Gonchar and others, that it knew as early as 1995 that Russia’s Central Bank had been placing portions of the country’s hard currency reserves with FIMACO, the obscure investment fund based in the Channel Islands. The international auditing firm Coopers & Lybrand, which audited the Central Bank in 1993 and 1994, reportedly mentioned and condemned the use of FIMACO in its audits (Moscow Times, July 7).

In addition, the World Bank has harshly criticized both the lack of transparency at many of Russia’s major banks and the Russian Central Bank for encouraging bad behavior in the banking sector. In a report not yet published, but whose contents have been leaked to the press, the World Bank strongly criticized Russia’s Central Bank for giving so-called “stabilization credits” to SBS Agro Bank. Central Bank Chairman Gerashchenko approved the first line of such credits to SBS-Agro last fall, when Yevgeny Primakov was prime minister. The Central Bank recently approved another credit line to SBS-Agro, worth 7.5 billion rubles (US$310 million). The World Bank report also criticizes the creation of so-called “bridge banks”–new institutions set up by several of the big Russian banks which were crushed in last August’s financial crash. These include Oneksimbank, which has set up Rosbank, and Bank Rossissky Kredit, which has set up Impeksbank. The World Bank report states: “The recent trend of setting up ‘bridge banks’ by other failed institutions–Oneksimbank, Rossissky Kredit, Menatep–while leaving debts behind in the remaining shells is unattractive” (Moscow Times, July 14).

At the same time, Russia has not fared well in the 1999 Global Competitiveness Report, produced by the World Economic Forum, which sponsors the famous annual economic conference in Davos, Switzerland. Out of fifty-nine countries, the competitiveness of Russia’s economy was ranked last, behind the economies of Ukraine (58th), Zimbabwe (57th), Bulgaria (56th), Bolivia (55th) and Colombia (54th). For further comparison, Japan was in 14th place, China in 32d place, Italy in 35th. Singapore was in first place, the United States in second. Russia was also found to be in last place overall when it comes to corruption, bribery, the criminal situation, tax avoidance and violence, though Bolivia, for example, was viewed as having an even less independent judicial system (Segodnya, July 14;