The IMF, Russia and Le Monde -- a Letter to the Editor by IMF Managing Director Michel Camdessus

August 19, 1999

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The IMF, Russia and Le Monde
by Michel Camdessus
Managing Director of the International Monetary Fund (IMF)

August 18, 1999

Reproduced with the permission of Le Monde

I wish to express my indignation at the false statements, allegations, and insinuations contained in the articles and editorial commentary appearing in Le Monde on August 6, 8, and 9 on the content of the PricewaterhouseCoopers (PWC) audit report relating to the operations of the Central Bank of Russia and its subsidiary, FIMACO.

In a front page story headlined "Comment la Russie détournait l´argent du FMI ...," [How Russia Misused IMF Funds] it is stated that the subsidiary "spéculait ainsi au profit des oligarques au pouvoir" [thus speculated in favor of the oligarchs in power]. In your editorial, you add that Russia "détourne, comme le feraient de vulgaires escrocs, l'argent de la communauté internationale pour permettre á quelques oligarques de s'enrichir" [like a common criminal, diverted the international community's funds for the enrichment of a few oligarchs]. What is worse, the article indicates that this misuse of funds occurred, if not with the agreement, at least "en toute connaissance de cause de la part des grands de ce monde : les responsables du FMI et d´abord Michel Camdessus, son Directeur général ..." [with the full knowledge of world leaders: officials of the IMF and primarily Michel Camdessus, its Managing Director].

Your readers will be shocked to learn that the report in question, requested and made public at the initiative of the IMF, states nothing of the kind: no misuse of funds has been proven, and the report does not criticize "le comportement du FMI devant l'accumulation d'opérations douteuses" [the IMF's behavior, given the accumulation of suspicious operations]. While the actual posting of the report on the IMF's site did not take place until after your editorial and article of August 6 were published, the decision to post it had already been announced publicly more than a week earlier and, thus, was not prompted by your "révélations," as you insinuated in your article of August 8. In fact, on June 16, 1999, I had personally asked the Russian authorities to make the report public, even before I was aware of its contents.

I would also point out that your representation of the IMF's knowledge and actions is misleading. We did know that part of the reserves of the Central Bank of Russia was held in foreign subsidiaries, which is not an illegal practice; however, we did not learn of FIMACO's activities until this year--because the audit reports for 1993 and 1994 were not provided to us by the Central Bank of Russia. The IMF, when apprised of the possible range of FIMACO activities, informed the Russian authorities that it would not resume lending to Russia until a report on these activities was available for review by the IMF and corrective actions had been agreed as needed. The version of the PWC report provided to the IMF is dated July 9 and it was circulated to the IMF's Executive Board on July 20, together with other documentation, for the Executive Board's consideration on July 28 of the request by Russia for a new loan. There was thus no attempt, as you suggest, to delay a reaction or public comment by the IMF on FIMACO's activities.

I would add that what the IMF objected to in FIMACO's operations extends well beyond the misrepresentation of Russia's international reserves in mid-1996 and includes several other instances where transactions through it had resulted in a misleading representation of the reserves and of monetary and exchange policies. These include loans to Russian commercial banks and investments in the GKO market.

The review of FIMACO's activities was not limited to a brief period in 1996, contrary, once again, to what you suggest, seemingly to imply that there might easily have been other, more recent, instances. The PWC report covers the entire period from the incorporation of FIMACO through early 1999, when the investigation was initiated. In addition, to arrive at its conclusions, the IMF did not rely solely on the PWC report and discussions with PWC staff. IMF staff also met with staff from the office of the Russian Prosecutor General, Mr. Skuratov, as well as staff of the Duma's Chamber of Accounts, to ascertain whether other areas of investigation needed to be taken into account.

Your articles under reference contain several factual errors, not to mention a number of assumptions which I consider unfounded. I cannot mention all of them, but two are sufficiently misleading for any reasonable interpretation of developments in Russia and of the IMF's collaboration with the audit of FIMACO to warrant correction. First, the implication that FIMACO's large holding of GKOs was a major factor delaying the devaluation of the ruble in 1998 is patently absurd. In fact, FIMACO has had no such holdings since 1996.

Second, you claim that, according to the PWC report, PWC staff was not aware of any agreements with the IMF specifying how the reserves were to be invested; you thus insinuate that information from the IMF was withheld during the audit or that the IMF was negligent in fulfilling its responsibilities in the particular case of Russia. There are no cases where such agreements have existed. The IMF provides general balance of payments financing to its members without specific earmarking of the funds it provides. Depending on the content of the program adopted by the authorities, IMF funds may go to finance part of the government budget or to strengthen the country's international reserves. In the case of Russia, the program called for using part of the funds to finance the budget and part to increase Russia's international reserves. There were also understandings about fiscal policy, but--in line with normal practice--without imposing criteria for the investment of reserves, which would be contrary to the need to maintain the liquidity of the assets in question.

However, this flexibility concerning the use of our funding does not at all reflect a lack of IMF interest in how the budgetary resources of our borrowing members are allocated. An essential part of the negotiations on the program just approved by the Executive Board involved, for the IMF, convincing the Russian authorities to increase its budgetary resources--in particular by increasing taxation of the major monopolies, such as GAZPROM--so as to be able to revalue wages, social benefits, and pensions, whose nominal value the government had decided to maintain even though expected inflation for 1999 was 50 percent. Moreover, this point confirms the extent to which you were incorrect in stating, in a headline of July 2, 1999, that "la Russie coupe dans les allocations familiales pour satisfaire aux conditions du FMI" [Russia is cutting family allowances to meet IMF conditions].

This leads me, lastly, to the judgment you express on the terms of the IMF loan, which you describe as "guère contraignantes ..." [hardly restrictive], lending to Russia having "devenu pour le FMI une seconde nature" [become automatic for the IMF]. Here again perhaps, you might have considered why, if this were the case, the loan in question was voted unanimously by the IMF Executive Board of 24 members, representing 182 countries. In fact, in Russia the IMF is merely following a policy of seeking to facilitate the continuation of reform measures--which are, of course, too slow. I think, however, that had you summarized for your readers the content of the reforms on which the loan is conditional, which were made public and a large number of which are now in place, they would have shared the opinion of the Executive Board that such a strategy--which is, of course, not perfect--is worth trying at any rate and is preferable to Russia's bankruptcy and economic isolation, with all that such a development could bring.