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What about Russia?
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September 28, 1999: 4:25 p.m. ET
IMF-World Bank meetings gloss over allegations of Russian corruption
By Staff Writer M. Corey Goldman
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WASHINGTON (CNNfn) - On the surface, this week's International Monetary Fund-World Bank meetings have been nothing short of a financial love fest with praise for a huge number of countries that have managed to overcome their respective crises and get on the right economic track.
But one of the biggest issues involving one of the more notable members of the Group of Seven industrialized nations has barely been mentioned in the mountain of press releases, communiqués and press articles emanating from 54th annual meetings: allegations of Russian money laundering and the involvement of the IMF.
The IMF has stated once or twice during the session that it has no intention of altering the $4.2 billion pledge it made to Russia in July. Already the first $640 million has been delivered to the Russian government, and officials including IMF Director Michel Camdessus have stated that they have every intention of delivering the next tranche of the loan in mid-October.
"In Russia, the economy is recovering, and the program that began in July this year is on track," Camdessus told delegates of 182 member countries at Tuesday's opening ceremonies launching the meetings. "We look forward, as the program moves ahead, to Russia's advance both in structural reforms and improving governance."
Internal vs. external
That's not how it looks on the inside.
Internally, the growing consensus among IMF and World Bank officials is that Russia is a country in chaos, that funds allocated were undoubtedly mishandled and that any additional aid to the country needs to be monitored much more closely, according to people familiar with the situation.
Russia is "a mess and there doesn't seem to be any issue about the fact that the money was mishandled," one delegate told CNNfn.com. "No one will go so far as to say they should not receive more money because that would only make things worse. What they're doing now is waiting for internal audits to decide what the best course of action is."
Russia, the IMF, the Bank of New York and several other U.S. and European financial institutions have been at the center of controversy in recent months since the Bank of New York (BK) publicly acknowledged its cooperation with law enforcement officials in a money laundering probe. Under scrutiny so far are nine different bank accounts, which officials believe were used to launder as much as $10 billion in illicit funds deposited by companies under the control of Russian criminals.
A substantial part of those funds, it's alleged, came from funding provided to the Russian government by the IMF. Auditors from PricewaterhouseCoopers now are examining the books of the Russian government -- in particular the Central Bank of Russia and its reports to the IMF -- to determine exactly where the IMF's money went.
Indeed, one result of the scandal has been a quiet decision by the IMF to require an independent audit each time it prepares to release another payment under the loan -- something it hadn't required before.
If for some reason the IMF does ultimately delay or even cancel aid to Russia, Russian officials say it will be because of the United States. Russian officials accused the United States Sunday of using politics to dictate the IMF's actions, saying Russia's next cash injection could be delayed by new conditions.
"There is a political influence on the IMF now, and its hands are not free now to take decisions," First Deputy Finance Minister Oleg Vyugin told reporters on Sunday, suggesting the next payment from the IMF, due in mid-October, could be delayed.
Mumblings and grumblings
Behind the scenes, many murmurings of the Russian scandal and the general state of the Russian economy have taken place -- both among IMF and World Bank officials and between ministers and central bankers attending the annual meetings from their respective countries. But surprisingly few public remarks have been made about the issue.
Internally, though, the money laundering scandal has prompted new debate about terms that should be set for future lending. A major theme this week in the seminars, speeches and press conferences was the need for greater transparency -- something that would undoubtedly help both IMF officials and legal authorities monitor the flow of money into and out of Russia.
In a communiqué released Saturday, the Group of Seven leading industrialized countries -- Britain, Canada, France, Germany, Italy, Japan and the United States -- urged the IMF to require Russia to strengthen its budget and finance controls before receiving any more money from the loan. That would include quarterly published audits of the central bank's reserve management practices.
But that's the G-7. Public statements from the IMF and the World Bank have been significantly less critical.
"Amidst all the recent controversy, we should not lose sight of the real progress that has been achieved during seven years of endless efforts to assist Russia in its journey toward a market economy," Camdessus told delegates Tuesday.
"They really don't know how to approach it," another official at the conference told CNNfn.com. "They can't simply stop giving them money because that will hurt the economy even more. They can't tell them what to do with every dollar because that's not what the IMF does. They have to come up with a different approach, and that's what they're working on."
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