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World Bank bets on Moscow
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July 16, 1998: 10:47 a.m. ET
Official also confirms outside audit of bank to deal with question of corruption
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NEW YORK (CNNfn) - One of the major worries of the world financial community has been the stability of Russia. International lending organizations this week pledged an additional $23 billion in aid. But that help comes with a list of conditions, and concerns.
Johannes Linn is a vice president at the World Bank. He joined CNNfn's "Business Day" Thursday morning to discuss Russia's progress in adopting austerity measures, as well as reports that the World Bank has hired outside auditors to check their finances.
Here's a partial transcript.
JOHN DEFTERIOS, CNN ANCHOR: The big question is whether Russia is going to be doing well. This is the third time it's gone to the brink in three years. And this package is an emergency one. But is there any reason to believe that this is the last of the crisis there?
JOHANNES LINN, VICE PRESIDENT, EUROPE WORLD BANK: Well, never say last. But the point is, in this case, that the government, I think this time realizes that the crisis is serious. Not just the government. I think the Duma realizes the various parties that have to come together to decide that this needs to go ahead with a serious decision in implementing the program.
They are working together this time, and I think it's that what makes us reasonably confident that indeed, we will see progress in terms of the structural forms which we support.
KITTY PILGRIM, CNN ANCHOR: We have seen some progress from the Duma, and they have about 20 measures to pass. They have passed a few, and one is that they managed to trim the corporate profits tax to 30 percent.
But one of the ones that they rejected is the 5 percent sales tax. And they said it was too punitive. Might we see this enacted by decree by President Yeltsin, and will this be necessary to get the funding they need?
LINN: Well, let me say first of all, their whole range -- as you indicated -- whole range of tax measures, many of them actually related to collection.
So in the end, you need to look at the totality, and this is what the particular -- on the tax side -- our colleagues in the Fund, IMF, are doing. On this particular one, in the end, if the government and the IMF make a dealing with the tax issues, if they judge that it is necessary to move forward, I'm sure they will find a way to do so, because the overall program has to hold. And if it's not through Duma, there may be other ways that this can be done.
DEFTERIOS: One danger here is that President Yeltsin has acquired a great deal of power. He can basically act by decree. There is impeachment proceedings, but it seems like this whole package really hinges on one man of frail health right now. Do you have the same concerns?
LINN: Well, obviously the political stability is a concern to all of us. And it would be silly to deny it. But I think, at the moment, you do have a team that is cohesive from the president on down in the government.
The prime minister, minister of finance, Mr. Chubais, are working together very forcefully and really going to bat. And I think this is the determination that the team shows is what we see as the key issue. But let me say also -- and this is very important -- that the international community won't pour money in just -- if nothing happens.
We will be there; we will be watching; we will be monitoring progress, in particular, the World Bank's program is significantly back- loaded. So I think we all -- and I think the financial markets should take comfort from the fact that there is considerable inducement, not just up front with the package that's coming right now, but also in fact, inducement to stick with it. And I think this is particularly, on our side, the design of the program. It promised money and deliver it when the actions have been taken.
DEFTERIOS: Mr. Linn, we see on the wire reports this morning that the World Bank has opened up its books to outside auditors. As you know, there is a big debate in Congress about whether the money is there, and whether it should be renewed. This shows us that there is spending that may be out of control. What is your response?
LINN: Well, I think it's basically the glass house phenomenon. As you know, the World Bank has picked up this issue of corruption in our borrowing countries as a major issue that we pay attention to.
When you do go and start with these kinds of serious investigations concerns, consider what -- what is wrong in the countries that you work in, you better be sure that your own house is fully in order.
And this is what [World Bank Group President James] Wolfensohn wanted to be absolutely sure of. So he started an investigation that picks up on a lot of strands that might -- that might indicate there is a problem. So far, very few, indeed, have shown any problem at all.
But the whole point is that the signal is to everyone, both outside and inside, that we, the management, and Mr. Wolfensohn, personally, will not stand by and let anything of this kind happen inside or outside that affects the ability for the World Bank to do it's job. So this is -- from that perspective, everybody has to be ready for an audit, and so are we. 
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