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Russia: Bank's Off-Shore Use Still Unsettled With IMF

Washington, 9 March 1999 (RFE/RL) -- The Russian Central Bank's use of a self-created, tiny off-shore financial firm to handle some of its foreign currency reserves through the mid-1990s continues to be a bone of contention between Moscow and the International Monetary Fund (IMF).

When the Central Bank's use of the Financial Management Company, known as FIMACO, was first revealed earlier this year, the IMF said it was unaware of the situation and demanded some answers from the bank and government.

The fund was concerned because former Russian Chief prosecutor Yuri Skuratov, in a report to the Duma Feb. 1, alleged that FIMACO had handled as much as $37 billion over the five years leading up to 1997, including IMF loan proceeds. Although former Central Bank Chairman Sergei Dubinin later said that the volume of reserves funneled through FIMACO never exceeded $1.4 billion at any one time, there was no denial that some was IMF money.

Current Central Bank Governor Viktor Gerashchenko said the little firm was needed because the Central Bank did not have the expertise to handle it's own foreign reserves and that it was a good way to keep the money from being seized by foreign commercial creditors.

But IMF sources in Washington say that in 1994 it sent a mission to the Central Bank in Moscow to conduct technical training in the whole area of reserves management.

The sources told our correspondent that fund advisers "emphasized prudent management through reputable (commercial) and Central Banks rather than through subsidiaries abroad" in seminars and meetings with central bank officials and employees.

The IMF sources says that in providing general technical assistance advise on reserve management to the central bank, IMF officials recommended specifically that all reserves should be "invested by and in the name of the Central Bank."

It is common practice for less experienced and smaller central banks around the world to have foreign investment banks or firms manage the investment of their foreign currency reserves, but it is the accepted rule that they use only the most prestigious and established firms with long years of experience. The arrangements are also publicly known and profits, loses and all transactions show up on the central bank's books.

Not only was the Russian Central Bank's use of the firm kept secret, but FIMACO's very creation and existence is shrouded in mystery. Central Bank officials have said that the firm was created by several officials from Eurobank in Paris, which is mostly owned by the Russian Central Bank. But the Washington Post newspaper says the registration documents on the Channel Island show the shareholders of FIMACO as Ogier Nominees Ltd. and Ogier Secretaries Ltd. with no further information on who they represented. The firm was set up with an initial investment of $1,000.

The Post also reported Monday that a 1997 audit of the Central Bank, presented to parliament but not made public, appears to show that the profits from the investments handled by FIMACO were concealed from Russian government officials.

A member of the Duma's budget committee, Nikolai Gonchar, was quoted by the Post as saying the committee, by law, should know what the "real income" of the Central Bank is, but that they still don't. Russia law requires the bank to share part of its profits with the government.

The Post said it's correspondent saw the audit and that in addition to indicating profits were hidden, it suggests that some of the reserves handled by FIMACO were not disclosed on the bank's balance sheet. It also says that the bank secretly and illegally used FIMACO to put several hundred million dollars into government bonds in 1996. The Central Bank declined comment on the report.

IMF officials say they are slowly drawing together information on what really happened with the Central Bank's use of FIMACO. They acknowledge that what is learned could be important as the fund tries to work with Russia on putting a loan program back on track.

Russian Prime Minister Yevgeny Primakov talked at length by telephone with IMF Managing Director Michel Camdessus on Friday, but there is no indication that anything was changed. Camdessus last week said he was still unimpressed by the economic recovery program put together by the Russian government and IMF Chief Economist Michael Mussa also said that Moscow was going backwards, not forwards, on some of its needed reforms.

A senior aide to Russian President Boris Yeltsin, Oleg Sysuyev, told a television interviewer Sunday night that Yeltsin was "very worried" about the future of negotiations with the IMF.