MOSCOW – There are four men, possibly five, who as former officials of the International Monetary Fund (IMF), know the sordid truth of the IMF’s intervention in the Russian economy, leading up to the decisions the Russian government took on August 17,1998, to cut the rouble loose, default on government debt, and cover the Russian oligarchs while they spirited several billion dollars offshore.
John Odling-Smee, who has supervised Russia at IMF headquarters from 1992, isn’t one of them. To demonstrate what he still doesn’t know (doesn’t dare admit), Odling-Smee has just celebrated the five-year anniversary of the default events, in which he was culpable, by publishing a fresh piece of advice to Russia. The editors of the Financial Times, who published it on their opinion page last week [August 19], either don’t realize there is no one left in Russia, who heeds such things; or they are playing a black joke on Odling-Smee.
Three of the IMF men, who know better, resigned from the organization after making their own personal forms of protest; their names deserve to remain anonymous. The fourth was a member of the IMF board of directors, who made his criticism of IMF policy towards Russia crystal clear in board memoranda and minutes; let’s allow him to remain anonymous, too. The fifth was Michel Camdessus, the managing director of the IMF during the 1990s, who allowed himself to play the puppet of the Clinton Administration on the ground – he would explain to his friends – that he had no choice. He’s retired, and prefers that sleeping dogs should be allowed to lie. If Camdessus wishes to be treated as a sleeping dog, why shouldn’t he?
But Odling-Smee is still in nominal charge at the IMF. He hasn’t protested; he hasn’t resigned. Indeed, although he was intimately involved in the decision-making by Russian government officials in the hours before the August 17 collapse became public policy, he has never admitted what he saw, heard, said, and did.
Odling-Smee knows a great deal about the $4.8 billion dollar “rescue” package which the IMF provided the Russian government in July 1998, one month before the collapse. Actually, the loan was issued to the Central Bank, not the Russian government, in an unusual change of loan terms which has never been explained. The shift enabled the Central Bank chairman, Sergei Dubinin, to urgently pay out most of the IMF dollars to a handful of oligarch-controlled commercial banks, then teetering on the brink of defaults on huge wagers they had placed on the value of the rouble. It was the decision of the commercial banks – in the vanguard, Menatep (Platon Lebedev and Mikhail Khodorkovsky), Uneximbank (Vladimir Potanin) and SBS Agro (Alexander Smolensky) – to default on their depositors, while buying dollars that were quickly removed from Russia.
This is what began the financial collapse, ten to twenty days before August 17. In the interval, the oil exporters successfully lobbied Sergei Kiriyenko, a prime minister appointed for his submissiveness, to accept rouble devaluation, combined with a 90-day moratorium on commercial bank debt payments. The idea of defaulting on the government’s short-term bonds (GKO’s) came last of all, and like all that had preceded it, it too could have been avoided. What was decided instead, was that the wealthiest of Russia’s oligarchs arranged to bail themselves out, and allowed a limited number of state institutions, notably Dubinin’s Central Bank, to share in the relief. Everyone else paid the price.
Odling-Smee had a fiduciary duty to prevent what happened. If he tried, he has been concealing the effort successfully for the past five years. Last week he claimed that the collapse was caused by “a big fiscal deficit that could no longer be financed; an exchange rate that could not be held without quickly exhausting reserves; a weak banking system overexposed to foreign currency risks; and a stagnating economy.” Look carefully, and you can see the ghosts of the culpable slipping through the walls of the Russian treasury.
For deficit, read yes-man Kiriyenko. For exchange rate, read yes-man Dubinin. For overexposed banking system, read Lebedev, Potanin, Smolensky et al. For stagnating economy, read the Russian oil lobby and Anatoly Chubais. Macro-economics never put anyone in the dock; and monetarism isn’t a conspiracy, let alone an indictment of grand larceny that would stand up in court. So Odling-Smee can hope to escape his responsibility by pointing the finger at forces and vectors he claims to have understood; not at men he knew were stealing.
He still knows they are stealing, because he warns that, at the moment “the greatest threat to [Russian economic] stability comes from the explosive growth in bank lending to the corporate sector.” You might think that Odling-Smee was finally pointing a finger at the major commercial borrowers of the Russian economy – Boris Abramovich’s Sibneft, Mikhail Fridman’s Tyumen Oil Company (TNK), Oleg Deripaska’s Russian Aluminium. They might default again, Odling-Smee hints. “The high oil price is masking some problems,” Odling-Smee concludes, “and any price declines would reveal underlying vulnerabilities,” Is this the reason Abramovich has been paying himself huge cash dividends and cashing out of his over-leveraged businesses? Is it the reason Fridman was relieved to take far less from British Petroleum for the sale of TNK than he had been asking from other oil companies?
Odling-Smee prefers forces and vectors, not individuals. And so, he claims that Russian banking reform “to strengthen supervision” is the panacea for risky lending, while “civil service and administrative reforms” should “reduce corruption and government interference in the economy;” If Odling-Smee is right this time, shouldn’t he explain why, when he was supervising the Russian banking system in 1998, it collapsed? Could it be that Odling-Smee, tongue firmly in cheek, is admitting that he and the IMF failed their supervisory duty then, but that domestic Russian bank supervisors could do better now?
If so, let’s be generous, and salute the IMF for paving the way for its withdrawal from Russian affairs. But wait one second. What can Odling-Smee be thinking when he claims that the route to ridding the Russian economy of corruption is to rid the economy of “government interference”. Who would be in charge of bank supervision, if government “interference” is reduced, not enhanced? What would happen to the oligarchs if there was less, not more “government”?
Alas, these important questions must go begging for answers. Odling-Smee isn’t taking the IMF out of Russian business. He still thinks he knows better, and isn’t responsible for what has gone wrong to date. He’s positioning himself to be on the safe side, in case there is another round of defaults, as almost half of all Russians currently believe. Odling-Smee is telling us, as if we didn’t already know, that he told us so.