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Russian IMF Loans Routed Through Offshore Company (fwd)
Russian IMF Loans Routed Through Offshore Company
Issue Could Cloud Primakov's U.S. Visit
By David Hoffman
Washington Post Foreign Service
Tuesday, March 23, 1999; Page A11
MOSCOW, March 22—Former Central Bank director Sergei Dubinin
said today that a secret offshore firm now under
investigation was used to
manage some of the funds the International Monetary Fund
lent to Russia
in 1993.
Dubinin claimed that no laws had been broken, but his
explanation differed
from a previous one and raised new questions on the eve
of Prime Minister
Yevgeny Primakov's trip to Washington on a mission to win
renewed IMF
lending -- which was suspended after the Kremlin devalued
the ruble and
defaulted on domestic debt last August.
Primakov's trip, perhaps the most important he has
undertaken in his six
months in office, could be clouded by questions about how
previous
Western aid was used, as well as by a host of other
issues, including
looming conflict in the Balkans.
Dubinin said the Central Bank told the IMF that
"operations with part of
the reserves were conducted through that financial
company; it was a
known fact. It was not news for the IMF." He was speaking
in an unusual
television interview devoted to questions about the
secret firm, Financial
Management Co., known as Fimaco, based on the largely
autonomous
British island of Jersey.
In Washington, an IMF spokeswoman said that while the
Fund knew the
Russian Central Bank was managing much of its
international reserves
through European subsidiaries, it did not know about
Fimaco in particular.
The Washington Post has reported that internal documents
show billions of
dollars of the Central Bank's foreign currency reserves
were funneled
through Fimaco starting in 1993 and that some of the
profits from
investments of that money appear to be missing. Part of
the reserves were
secretly reinvested in Russia's high-flying treasury-bill
market through
Fimaco and a related company in Russia, Eurofinance, the
documents
show.
Russia's embattled prosecutor general, Yuri Skuratov, who
is caught up in
the aftermath of a sex and videotape scandal, has said
the Central Bank's
handling of the reserves is under investigation.
In an open letter published Feb. 11, Dubinin defended the
use of the
offshore firm, saying a Swiss businessman was seeking to
seize Russian
currency reserves in a legal dispute and the money had to
be hidden. He
said at the time that it was appropriate for Fimaco to
remain secret.
Today, Dubinin offered a different explanation. He said
that Russia was not
part of the international financial system in the early
1990s, and "there
appeared a necessity to manage the reserves" outside of
Russia. "We
needed a channel of management. It was not hiding money
from anybody;
everything was legal, clear and in line with
international practice."
Nikolai Gonchar, a leading independent member of the
lower house of
parliament, the State Duma, and a member of its budget
committee, has
raised questions about whether Russia's currency reserves
were used for
private gain. He has said that profits from investing the
overseas money
may not have been returned to Russia. It is not clear yet
where they wound
up.
According to the internal documents, $1.7 billion was
transferred through
Fimaco in 1993; part of it was to be reinvested from
abroad into Russia's
nascent short-term treasury-bill market. More funds
continued on that path
in 1994, '95 and '96.
In the months before President Boris Yeltsin's reelection
campaign -- from
Feb. 29 to May 28, 1996 -- hundreds of millions more were
pumped
through the secret overseas channel back into the
treasury-bill market,
which at the time was yielding more than 200 percent
interest annually.
Dubinin said the money was withdrawn from Fimaco in 1997.
Dubinin also lashed out at the prosecutor's office,
saying it was under the
influence of "blackmailers," whom he did not name, and
asserted that the
Central Bank never violated Russian laws. Prosecutor
General Skuratov is
facing demands from Yeltsin that he resign and has
offered to do so, but
the upper house of parliament has rejected his offer.
In Washington, Primakov will be seeking IMF agreement to
borrow
enough to cover $4.5 billion in Russian loan repayments
due this year to
the lending agency. Russia's total debt due this year is
$17.2 billion, or 80
percent of its national budget. It has already missed
some payments on
debt that dates to the Soviet era.
As Primakov prepared to leave for Washington, Russian
officials have
been trying to lay the groundwork for talks that will
focus not only on
Russia's IMF debt but also on a host of other issues,
such as Russian
cooperation with Iran, conflict in the Balkans, the
stalled START II
arms-control treaty and the endangered 1972
Anti-Ballistic Missile treaty.
Primakov also met today with American Jewish leaders and
pledged to
fight antisemitism in Russia.
The chief reason for Primakov's trip, however, is to win
approval for
resumption of the IMF loans. "Primakov must prove to the
United States
that Russia is making headway with reforms and that
Russia is a partner
that can be trusted," said analyst Andrei Kortunov. "He
also must get
United States support on this issue, concerning credits
from the IMF."
President Clinton has said he would like to help Russia
but wants to make
sure the money is properly used. The IMF has made it
clear that
Primakov's chances of cinching new funding on this trip
are remote. While
Russian officials have shown more willingness to cut the
country's massive
budget deficit, they said, the two sides are still far
apart. "It would be
premature to say we're on the verge of inking a new
deal," an IMF
spokesman said.
Staff writer Paul Blustein in Washington contributed to
this report.
© Copyright 1999 The Washington Post Company