[Fwd: IMF knew of Russian chicanery]

Carrol Cox cbcox at SPAMilstu.edu
Sun Oct 17 12:59:33 MDT 1999

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Subject: IMF knew of Russian chicanery
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[from Johnson's Russia List]

Turin's La Stampa
8 October 1999
[translation for personal use only]

Report on interview with Russian Duma Budgetary Affairs Committee
member Nikolay Gonchar by Giulietto Chiesa in Moscow; date not given:
"The IMF Knew About Moscow's Fraud -- the auditors informed the IMF of
it in 1995"

Moscow -- "Why did the Clinton administration say nothing about all
this, which is perhaps the ultimate instance of human rights
violation?" This was said not by Li Peng but by Steve Forbes. And the
silence in question concerns the minor detail that "tens of millions
of Russians, some 40 percent of the labor force," are again being
subjected to a new -- de facto -- system of serfdom." That is, they
are not being paid for the work they do, while the Clinton-Gore
administration and the IMF are funding this shameful situation by
paying billions of dollars to the corrupt Russian Government."

The line of defense used by Clinton and Gore, and by the architect of
the US Administration's Russian policy, Strobe Talbott, focused until
very recently on such arguments as: not everything has gone so badly,
after all; or: we knew that there was corruption, but it was
inevitable; or: it was a calculated risk. However, the line of
defense used by top IMF officials -- Michel Camdessus, Stanley
Fisher, and their colleagues -- was: we knew nothing about it.

I recall a major article in Izvestiya on 4 March this year headlined,
"IMF: the United States' Ultimate Weapon," which stated that "the
White House is playing a geostrategic game with Russia in which the
IMF's stubbornness is merely for show, while the big business is
conducted on the sidelines." What business?

Political business. The ratification of START-2, the acceptance of
NATO's line on Kosovo, tolerance of the bombardments of Iraq, the
termination of cooperation programs with Iran, and the reduction of
plans for the sale of arms and military technology to China and
India. Then -- Mrs Albright gave then Prime Minister Primakov to
understand -- the United States may knock on the IMF's door on
Russia's behalf.

This is indeed what has happened throughout these years: hard cash
has bought political concessions. And after every such "contract" of
this sort, it was up to the IMF to explain to the world that
everything in Russia was fine, that the market was on the verge of a
spectacular blossoming, and that the loans were being granted
precisely in order to help the reforms underway. In the meantime
Russia was falling apart -- perhaps an undesirable effect, but an
inevitable one.

Duma Deputy Nikolay Gonchar, a member of the Budgetary Affairs
Committee, showed me some astonishing figures: "Do you see? This year
we have to include in our budget expenditure of 116.8 billion rubles
[R] to service our debt. That is almost $7 billion, 29.1 percent of
the state's expenditure. It is crazy. No country can survive that.
But in 00 we will have to allocate R2 billion to this. There is only
one solution: to declare a "default" and to ask the international
community to freeze all Russia's foreign accounts...

He smiles. He is the first to realize that this is an unfeasible
method. "But we must at least understand how we reached this
situation," he explained, "because there is something that escapes
many Western observers, and that is the scale involved. In 1990 the
USSR's debt was $37 billion. In nine years it has risen to over $160
billion. The question is: how was it possible for the debt to
increase fourfold, despite reducing our population by over 100
million, keeping all the Soviet Union's natural resources, achieving
a surplus balance of trade, and drastically reducing all budgetary
expenditure -- despite all this? Obviously we are dealing with a
systemic distortion. It is ridiculous to talk in terms of the mafia.
It is the political leadership that has done all this. And not on its

So can those in the United States who talk about mafia laundering,
albeit on a very large scale throughout Russia, not see the wood for
the trees?

"Precisely. Believe me, the whole Bank of New York business is a
diversionary tactic. It was the leading actors in the disaster
themselves who initiated these rumors. What is $15 billion compared
to the total? The simple fact is that the Bank of New York was the
laundry for the entire elite. Since everyone, both great and small,
is implicated, they hope that, amid this great confusion, the details
will disappear and the big fish will manage to camouflage themselves."

What do you mean by "big fish"?

"First and foremost, the oligarchs' banks. Then there are the names
of prominent government members, which have already been leaked in
the United States (these are the names published by USA Today at the
end of August including Tatyana Dyachenko, Anatoliy Chubays, Oleg
Soskovets, Aleksandr Livshits, and Vladimir Potanin -- La Stampa
editor's note). Last, there could be some big names from the
international financial institutions themselves. As far as central
banker Yuriy Dubinin is concerned, we know that Prosecutor Skuratov
initiated criminal proceedings against him in January."

There is another point that needs to be clarified here. There have
been only two chairmen of the Russian central bank in recent years --
Viktor Gerashchenko and Yuriy Dubinin. What is the difference between
them? Is there any difference? I recall that Gerashchenko was very
much hated by the pro-Yeltsin "reformers," who accused him of wanting
to pursue a Soviet-style inflationist policy and who succeeded in
having him ousted by Boris Yeltsin, replacing him with Dubinin. Then
Dubinin was ousted after 17 August, the day the ruble collapsed, and
Gerashchenko returned to the helm of the central bank, together with
Yevgeniy Primakov, the Prime Minister chosen by the Duma. But
Gerashchenko seems to have undergone a conversion in the interim.
Indeed everything continues almost as before.

Nikolay Gonchar lets slip a grimace: "During the three years in which
Gerashchenko did not work as the state's banker, he was in fact
working as a banker. And even before that, during the immediate
post-Soviet period, it was he who founded Fimaco. If you look at the
history of the Royal Bank of Scotland Trust Company, based in Jersey,
you will find records of Gerashchenko's name. It was that very bank
that first owned Fimaco, via which former CPSU money "circulated."
And then specialized in purchasing Soviet debts abroad, at a rate of
10 percent, and selling them on to the central bank at market prices."

So we return to the heart of the greatest scandal -- the $50 billion
that passed through Fimaco, a strange offshore company with a capital
of $1,000 and based in Jersey. Nikolay Gonchar is one of the people
who know most about it, having been able to examine Attorney General
Skuratov's files. Moreover, it was Gonchar, in July, who produced
final proof that the IMF knew about the improper and fraudulent use
that the central bank was making of its reserves, and also about the
loans received from the various international institutions. How?

By displaying extracts from a 1995 document produced by Coopers and
Lybrand, the firm tasked with auditing the central bank's accounts in
the years 1993-1994 (under the Gerashchenko administration.) These
show that Coopers and Lybrand discovered and reported the
irregularities. Gonchar says that he knows that those documents were
forwarded to the IMF no later than the end of 1995.

Do you now reaffirm that assertion?

"Certainly. I discovered what was going on in 1997, on my own
account, when I was Chairman of the Federation Council's Banking
Committee. This is why I proposed that the upper chamber reject the
central bank's accounts, which were flagrantly irregular."

May I see? There is a very clear reference to the 1994 audit.

"During previous audits we expressed our doubts about the investment
of funds in Fimaco and recommended that it [the central bank -- La
Stampa editor's note] seek the services of other investment firms
with a stronger reputation. We still recommend this."

And the non-Gogol-ite auditors of Coopers and Lybrand added
elsewhere, in connection with a mater of detail: "As far as we are
able to establish, the source of the R1,854 billion [as published]
deposited by the central bank with Fimaco... are credits that the
Finance Ministry obtained from the World Bank and the IMF."

And when we examine the list of banks that purchased dollars from the
latest IMF loan -- that of July 1998 -- we discover Evrofinans, among
others. This is a front company whose owners include Evrobank, a
Paris-based subsidiary of the Russian central bank (35 percent) and
-- surprise, surprise! -- Fimaco (also 35 percent.) In other words:
a) the central bank pumped money into this sham company, whose
profits were exported abroad and not accounted for; and b) acting
prosecutor Yuriy Chayka is lying when he says that in 1998 Fimaco did
not take part in this fraudulent game. So the misdeeds date back a
long way.

Nikolay Gonchar adds that he can prove that the central bank
concealed millions of dollars in profits generated by transactions
via Fimaco; that is, he accuses the central bank of having taken
money from the state budget inasmuch as, according to current law,
Russia's central bank is obliged to transfer 50 percent of its
profits to the federal budget.

Did the IMF know about this? "It knew everything," Gonchar replies
categorically. It is a pity that on several occasions, after the scandal
broke out in Russia in February 1999 with Skuratov's denunciations, the
IMF's official spokesmen maintained that they did were not even aware of
Fimaco's existence.

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