Where did IMF loan to Moscow wind up? Critics in Russia, U.S. say $4.8 billion was squandered in weeks

September 25, 1998|By LOS ANGELES TIMES

MOSCOW -- When the International Monetary Fund lent Russia $4.8 billion in July, Russian officials said they hoped the emergency funds would sit unspent in the Central Bank's reserves, bolstering the wobbling ruble.

But within weeks of the money's arrival, economists and government critics say, it was spent on fiscal measures that provided a windfall for Russian bankers and foreign investors but did little to help the struggling economy.

"This tremendous sum was not spent by the Central Bank to restructure the debts and not even to pay overdue wages," said Andrei Nechayev, co-chairman of the Russian Business Round Table.

"All this money was squandered."

Some critics contend that part of the emergency loan -- pushed by the White House to save Russia from economic collapse -- ended up in the Swiss bank accounts of investors and wealthy Russians, draining the country of much-needed cash and leaving average Russians empty-handed.

"The money has evaporated," said Alexander P. Smolensky, one of Russia's most powerful bankers. "I am really surprised to watch the IMF doling out money so easily, without any actual response or concern. How can they keep pumping money into a black hole?"

Some members of Congress are asking the same question. In particular, they want to know how much of the IMF loan went to banks linked to Russia's notorious organized-crime groups.

And Russia's prosecutor general has begun looking into the activities of the Central Bank, including its handling of money from the IMF. In addition, the prosecutor's office is examining the Central Bank's administration of a Treasury bond program widely viewed as a pyramid scheme, a Central Bank spokeswoman, Irina Yasina, confirmed.

Yasina defended the Central Bank's operations and said it had acted properly in its administration of the IMF loan.

Of the $4.8 billion from the IMF, she said, $1 billion was transferred to the federal budget, where much of it was spent to pay off investors who had bought the controversial short-term TC Treasury bonds, known as GKOs, at interest rates of up to 200 percent.

The remaining $3.8 billion was kept in the Central Bank's reserves and cannot be distinguished from other money deposited into the account, Yasina said. While an equivalent amount was spent to stabilize the ruble after the loan was received, she said, the Central Bank still has about $13 billion in its reserves.

Despite her assertion that the Central Bank still has the money, independent banking analysts in Russia and the United States say the bank spent the IMF loan almost as soon as it arrived, squandering most of it trying to prop up a ruble that was vastly overvalued.

Sometimes the Central Bank spent $500 million in a single day to buy unwanted rubles -- effectively subsidizing banks and investors seeking to unload Russian currency.

"It's conventional wisdom that a lot of that money they lent found its way to banks and that the banks took it out of the country," said Robert A. Litan, a Brookings Institution banking expert.

IMF officials in Washington acknowledged they do not know what the Central Bank has done with the money. Once Russia received the loan, there were no restrictions on how it could be spent and the lending agency has no way to trace where it went, they said.

Dmitry V. Vasiliev, chairman of Russia's Federal Securities Commission, said the IMF loan was ripe for abuse because of the Central Bank's potential conflict of interest.

While the Central Bank was responsible for administering the GKO bond market, it also had bought GKOs on the secondary market through subsidiary banks it controls. He charged that the Central Bank itself was one of the beneficiaries of payments from the IMF fund that it controlled.

Yasina denied that the Central Bank has any conflict of interest, noting that it is not a profit-making enterprise.

IMF officials say they have a "very good relationship" with officials of the Central Bank and believe they are trustworthy. Some of those bank officials have now been dismissed with Russia's change of government and the appointment of a new Central Bank chief.

Last week, the IMF sent a team to Moscow to discuss Russia's economic recovery and the prospects for another loan installment, this time for $4.3 billion, that had been scheduled for this month.

Pub Date: 9/25/98

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