Publication: Fortnight in Review Volume: 5 Issue: 15

The International Monetary Fund’s decision to release US$4.5 billion to Russia, held up since the August 1998 financial collapse, was the fortnight’s biggest non-surprise. Observers had long speculated that the fund, under criticism for not anticipating or even playing a role in the financial meltdowns in Asia and Russia last year, simply could not risk the further, possibly fatal damage to its reputation which would stem from a Russian default. So the IMF, in essence, simply rolled over Russia’s debts while covering its decision with stern words about closely monitoring Russia to make sure it implements economic reforms. IMF Deputy Managing Director Stanley Fischer, in a burst of uncharacteristic candor, even admitted the Russian authorities had lied to the fund by hiding part of the country’s hard currency reserves in FIMACO, an obscure Channel Islands asset management company, over a five-year period.

In fact, Fischer’s admission was an understatement. Several days after his comments, “The Moscow Times,” citing an audit carried out at the IMF’s request by the international accounting firm PricewaterhouseCoopers, reported that Russia’s Central Bank had kept a second set of books for transactions involving FIMACO. The Central Bank had also loaned parts of the reserves to commercial banks and had used portions of both the reserves and IMF loans to speculate on Russia’s treasury bill market. It then kept the returns from those operations off the official books.

Despite all this, the international lending institutions and their main contributors clearly wanted to change the mood music surrounding Russia. They pointed to signs that Russia’s economy, if not recovering, was at least “stabilizing,” with growth registering in some sectors and inflation remaining low. And, perhaps more important, they could take cheer from the rising poll numbers for Prime Minister Sergei Stepashin, a presumed presidential aspirant who, if not a model “energetic young reformer,” has the attribute of being neither Moscow Mayor Yuri Luzhkov nor former Prime Minister Yevgeny Primakov. Each of those men make Western governments, lenders and investors very nervous.

Some of that last group gathered in Washington to hear Stepashin give an upbeat speech, in which he even declared that all the talk about the Russian economy’s “criminalization” should be taken with a grain of salt. However, traveling with Stepashin was Primorsky regional Governor Yevgeny Nazdratenko, who was undiplomatically described in a newspaper article by some Western businessmen working in the region as a “thug” and a “crook.” The very day of Stepashin’s speech, moreover, a prominent businessman in St. Petersburg, the city where the prime minister began his political career, was assassinated. The businessman’s assassins fired rocket-propelled grenades at his armor-plated Chevrolet Blazer and then finished him off with Kalashnikovs. Meanwhile, the maker of the Blazer, General Motors, reported that its sales in Russia in the first half of 1999 were down 90 percent over the same period last year (just 115 Blazers sold). For their part, the Moscow police announced that they had seized so many cars stolen abroad that they no longer have room on their impoundment lots. They will therefore let the new owners keep the hot vehicles unless the original owners claim them within a year.