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Russia: Mystery Surrounds IMF Loan

Washington, 23 March 1999 (RFE/RL) -- Does U.S. Treasury Secretary Robert Rubin know something about the Russian financial crisis that no one else does?

That was the question being asked around Washington going into the week-end after Rubin was quoted as saying that most of the $4.8 billion in loans sent to Russia by the International Monetary Fund "may have been siphoned off improperly."

Rubin reportedly made the comment while testifying last week before a House appropriations subcommittee looking at the Treasury department budget for the next fiscal year.

Reports of the comment sent journalists as well as U.S. Treasury and IMF officials scrambling to find out what Rubin seemed to know.

U.S. officials say they are always concerned about any impropriety in dealing with IMF money. "It's something we don't take lightly," commented one.

The IMF is currently conducting its own investigation into what happened to the last tranche or two of it's loans which were apparently lost in the Russian Central Bank's futile attempts last summer to protect the value of the ruble on foreign exchange markets.

The story of Rubin's comments, as pieced together from U.S. Treasury and IMF sources, is not very exciting and only shows the danger of taking remarks out of context.

While being questioned by House of Representatives subcommittee members last week, Rubin was asked about Russia's financial situation and what Moscow really did with the IMF money.

According to the sources, Rubin responded clearly that he had no idea what actually happened in Russia, especially in the month leading up to the August debacle.

However, in further questioning, Rubin said there were a lot of possibilities. "It's hard to know what happened to the money," he said. "I don't know, it may have been siphoned off improperly for all we know yet."

U.S. Treasury officials explain that since the Russians were defending their currency -- attempting to keep the ruble stable against the dollar -- it could only have been done by spending large sums of money. When a Central Bank is defending its currency, it must spend another currency -- in this case dollars -- to buy rubles off the market and try to use the normal market force of rising demand to keep the ruble's value up. The dollars the Russian central bank had at hand were those just transferred in by the IMF.

When a currency defense action is going on, it is normal for large amounts of money to be leaving the country -- investors seeking to diversify their risk, currency sellers taking their money elsewhere for buying opportunities, and anyone who decides to keep his or her money in a safer place.

Treasury and IMF officials say there is no question that huge sums of money moved out of Russia just ahead of the August crisis, but whether there were actual thefts or illegal actions has not yet been determined.

Rubin did tell some people later that his choice of words might have contributed to some misunderstanding. "It may have been careless to use the word 'improper'", he said. "There is nothing improper about moving money out of Russia or any other country."

"Money is fungible," said the treasury secretary, "so it is hard to say exactly what happened to it. I can't tell you what happened."

At an appearance late Friday, Rubin said he had been misquoted because reporters frequently look for the simple black and white that some action was either good or bad. "There are people who have reported that the Russian decision (by the IMF) was wrong because it didn't work," said Rubin, but that is incorrect because in the framework of the time, it was absolutely right.

What went wrong in Russia was that the Duma and the government failed to act to implement the necessary reforms, Rubin said.

Treasury and IMF officials reiterated that at this stage, nobody has an accurate picture of precisely how all of the money was used. Eventually, they say, they want the answers. But it is premature to assume anything good or bad, they say.