THE GOVERNMENT AND THE BANKERS MEET TO DISCUSS THE BANKING SYSTEM…

Prime Minister Yevgeny Primakov and Central Bank Chairman Viktor Gerashchenko met with two dozen of Russia’s top banker-industrialists Tuesday to discuss how to jump-start Russia’s comatose banking system. The prime minister outlined four basic tasks: to restore the banking system’s “efficiency,” to regain confidence in that system domestically and abroad, to ensure the safety of people’s deposits and to unfreeze the system of payments and settlements.

The Central Bank will create an “agency for restructuring the banking system” to carry out a plan to restructure and recapitalize the banking system. According to this plan, Russia’s banks will be divided into four categories: banks retaining their capital and liquidity, banks retaining their capital but having liquidity problems, banks both illiquid and no longer with capital, and banks in crisis but nonetheless crucial to the banking system and the economy. Primakov promised that ailing banks would not be nationalized, but warned that some of them would go under, adding that banks must start working for the development of the Russian economy. Gerashchenko said the government would support small- and medium-sized banks which are “facilitating payments at the regional level” (Russia agencies, October 13).

However it is not only small- and medium-sized banks which are likely to get state assistance. Indeed, a likely candidate for the privileged fourth category is SBS-Agro, headed by Aleksandr Smolensky. While its debts are estimated at US$1 billion, it has 1,500 affiliates around Russia servicing the agricultural sector (back in 1996, it took over the state’s Agropromank) and funding from more than two-thirds of Russia’s regions. Following last August’s crash, SBS-Agro was threatened with nationalization. Now it is likely to be propped up by the state. A high-level source in the Central Bank told the Russian agencies Wednesday that the Central Bank was considering a large credit to SBS-Agro (Russian agencies, October 13).

…PROPOSALS INCLUDED INVOLVEMENT OF THE WEST AND REDUCTION OF PRIVILEGED BANKS.