A good man to know if you're broke

Did his loan to Moscow secure telecom deal?
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MOSCOW WAS forced to go cap-in-hand to the American financier, George Soros, last year for a quickie loan.

Mr Soros gave the Russian government a one-week bridging loan of "several hundred million dollars" last June in order to help it pay some of its hefty debts in back wages.

Although the sum is trifling when compared with the country's $150bn (pounds 94bn) mostly long-term foreign-held debt (or even its more urgent $60bn high-interest short-term rouble borrowings), the loan has raised eyebrows in Moscow's financial circles. It was granted only a month before Mr Soros put up nearly $1bn to help fund a successful bid for Svyasinvest, one of the most sought-after and viciously fought-over prizes of Russia's privatisation process.

The sell-off of the telecommunications company has long been shrouded in controversy. It triggered a squabble between the losing bidders and the government. And it was at the centre of a political scandal after it was revealed last November that Anatoly Chubais, Boris Yeltsin's right- hand man and economics guru, and several other officials each accepted $90,000 advances for an unpublished book from a publishing company linked with Uneximbank, which led the winning consortium.

Three officials were promptly sacked over the scandal by Mr Yeltsin, delivering a blow to Mr Chubais's reformist team from which it has yet fully to recover. "There is obviously no evidence that Mr Soros did anything untoward," said one Western financial analyst in Moscow, "But you have to wonder if his loan may well have a been a sweetener for the Svyasinvest deal."

Intriguingly, the Russian government approached Mr Soros for a second loan in December, which he declined, arguing that "he didn't want to make a habit of it".

Mr Soros - who has spent $350m on charitable projects in Russia in the last decade - said his loan was to bridge a gap before a $2bn eurobond issue in July. The financier has suggested that the government turned to him because it did not want to undermine the confidence of Western bankers involved in the issue.

But the move is also a measure of the anxiety of the government about the social and political consequences if it failed to do something to ease the massive crisis of unpaid wages and pensions, which have prompted strikes and protests across the country. Mr Yeltsin had set a deadline for paying off pensions of 1 July 1997, raising the possibility that Mr Soros's money was, in fact, used for this purpose.

Sources indicated yesterday that the International Monetary Fund (IMF), which is closely monitoring Russia's finances, was not informed of the Soros loan. But neither has it caused its officials great concern.

However, the IMF will be closely watching for further evidence that Russia is discreetly borrowing from Western banks and financiers in order to offset its problems, which include an shortfall in revenues of more than $8bn. At the height of the Asian crisis at the end of last year, it quietly borrowed $950m from Western banks, again to meet its wages bill.

Matters are unlikely to improve soon, despite the vote this week by the State Duma (lower house of parliament) to approve a 1998 budget. Observers say the budget could deepen the non-payments crisis as it overestimates revenues. If this cash does not come in the government will have to start slashing anew.