Russia comes begging again

Phil Reeves explains why the West has little alternative but to lend more to a corrupt state that has already squandered billions

RUSSIA'S FALL from history's high table could hardly be more cruelly illustrated. There are few places its officials would less like to be this weekend than Washington, where the old enemies from Nato are holding their 50th birthday bash with a round of mutual backslapping. Yet a delegation of senior Russian officials will today touch down in the US capital, climb into limousines and slide quietly downtown, caps in hand.

Their destination is the International Monetary Fund and World Bank's spring meeting. Their aim - finally to nail down a new loan agreement in the hope this will stave off the threat of further economic collapse.

Moscow is already the fund's biggest debtor by far. It owes $18bn (pounds 12.5bn), money thrown at the country to secure its transition from Communism to democratic capitalism, and avoid total breakdown. The money has gone, yet free market reforms and the economy are in refrigeration. Again, Moscow turns to the West, hand outstretched, encouraged by the thought that its chances are improved by its commitment to stay out of the Balkans war.

The delegates, led by first deputy prime minister Yuri Maslyukov (a dinosaur, in IMF eyes) are not exactly alluring suitors, as the fund has made clear in weeks of tough negotiations. Among many sins, Russia has an ineffective tax collection system, a profoundly corrupt bureaucracy, a shaky understanding of money, a bad habit of settling its accounts by barter, and a capital flight crisis in which several billion dollars wing their way abroad every month. To that should be added the central bank throwing credits at its crippled and crooked banking system. The figures look grim: this year the IMF expects inflation in Russia to come in at just more than 100 per cent, while GDP shrivels by a further 7 per cent.

Looming large are the memories of the fate of last year's IMF $22bn (pounds 15bn) rescue package, which failed to save Russia from an economic meltdown, but instead got sucked into a vortex on the debt market which stifled credit and investment, before the market crashed. After Russia defaulted last August the rouble fell to a quarter of its 1997 value against the dollar. Now more problems are brewing: without a deal, Moscow says it will be unable to honour foreign debts of $17bn (pounds 11.4bn) due this year.

Despite all this - and divisions within the IMF - the Russians are likely to get their money. Obviously, the IMF wants its loans back, but some of Moscow's debts due this year are to the fund itself and the World Bank. By borrowing again, Russia should be able to make payments, ultimately reducing overall debt.

Broader geopolitical issues are also in play, including the lingering fear that a stagnant, truculent Russia will slide into isolation and international delinquency. Though the West does not like Yevgeny Primakov, the Prime Minister, or the free market sceptics at his side, they have proved unexpectedly thrifty, and successfully stabilised the country after last August despite predictions of chaos. Ultimately, he is someone the West can work with.

"Moscow needs the deal to avoid the nightmare of another default," said Al Breach, a Moscow-based economic analyst. "The IMF needs it because it doesn't want egg on its face by seeing its biggest involvement go utterly wrong, and the West needs it because it doesn't want Russia to blow up."

Michel Camdessus, the IMF's managing director, said on Wednesday that he expected "good news" for the Russians. Much hinges on tomorrow's meeting of G7 financial ministers. But bets are on a one-year deal for about $3bn (1.9bn).

Yet a nagging issue remains. Could this be the same Russia whose Central Bank recently admitted channelling abroad hard currency reserves - including IMF loans - through an obscure offshore company called Financial Management Co in the Channel Islands?

The Fimaco story broke in February when the chief prosecutor, Yuri Skuratov, claimed billions of hard currency reserves went through the company in five years. Mr Skuratov has now found himself in the cross-hairs of Boris Yeltsin himself - ostensibly because he was caught with prostitutes, but more probably because his department is digging into Kremlin bribe-taking and corruption in the Central Bank. The President wants him to be fired.

Nine days ago, the Russian parliament called on Mr Skuratov to investigate the Central Bank's use of Fimaco, accusing bank officials of using the company to siphon off millions of dollars through insider trading.

Fimaco was an obscure shell company set up in Jersey in November 1990. Although ownership was unclear, there is no doubt it was an instrument of Eurobank, a Paris-based company controlled by the Soviet State Bank, then by its Russian successor, the Central Bank.

As the West wonders whether to dole out more - Britain is among the IMF's top five contributors - many questions remain unanswered. What happened to the profits from the billions that Russia sent abroad which were said to have been used to play the country's debt market? Why were they not spent on the benighted population of Russia itself? These considerations have been put on the back burner in the past few weeks, overshadowed by the Kosovo crisis, and the recognition that Russia's ruffled feathers must be smoothed.

But not everyone has forgotten. Like, for instance, Gerd Meissner, a senior diplomat at the German embassy in Moscow. "Personally, I fully support the view that no IMF money should be released before Russia makes clear how it managed its reserves," he told the Moscow Times. He has a point.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Account Manager (Junior)

Negotiable: Clearwater People Solutions Ltd: Account Manager (Junior) Account ...

Solar Business Development Manager – M&A

£50000 - £60000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Accountant,Reconciliations,Bristol,Bank,£260/day

£200 - £260 per day + competitive: Orgtel: Accountant, Reconciliations, Bristo...

Test Analyst

£20000 - £30000 Per Annum: Clearwater People Solutions Ltd: An experienced Tes...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried