BANK BAILOUT BEGINS…

Russian Central Bank Chairman Viktor Gerashchenko announced last Saturday that the Central Bank had released 14 billion rubles (a bit less than US$1 billion at current exchange rates) to a group of ailing commercial banks, including SBS-Agro, Mosbiznesbank, Most-Bank, Bank of Moscow and Moscow Industrial Bank, along with several regional institutions. The bailout meant that SBS-Agro, which is at least US$1 billion in debt, was able to begin dispensing cash from its machines in Moscow for the first time in a month. The Central Bank also recently lowered the amount of money which banks are obliged to have on reserve. These actions, as one newspaper pointed out Tuesday, amount to “a rather significant” state support for certain commercial banks (Kommersant daily, November 3). This was confirmed by a Central Bank statement Tuesday, that it had lent a total of 55 million rubles ($3.5 billion) to commercial banks since the Russia’s financial collapse last August (Russian agencies, November 3).

Gerashchenko’s announcement, which he made in a cabinet meeting during which the government’s anticrisis program was approved, was not entirely unexpected. After Prime Minister Yevgeny Primakov formed his cabinet last month and tapped Gerashchenko to head the Central Bank, Gerashchenko unveiled a plan to restructure Russia’s banking system. The plan divides Russia’s commercial banks into four groups, with those in the fourth group slated for bankruptcy while those in the top group essentially deemed “too big to fail,” and thus bailed out by the state. SBS-Agro, which in 1996 took over the state’s Agroprombank and, as a result, has affiliates throughout the country, particularly in rural areas, is clearly in the privileged category.

In an interview published Tuesday (November 3) in “Izvestia,” Finance Minister Mikhail Zadornov said the government would print no more than 25 billion rubles before the end of the year. Some observers, however, believe such a modest emission will not be possible given the government’s plans for bailing out the banking sector. In fact, the government’s program vis-a-vis that sector was apparently one of the major sticking points in its discussions with the International Monetary Fund, whose representatives left Moscow last week without agreeing to release any of its promised US$4.3 billion credit. Deputy Prime Minister Gennady Kulik said yesterday that the IMF had said it opposed the Russian government’s spending money to bail out commercial banks. Kulik struck a defiant note, saying the government was still hoping for the IMF tranche, but was ready for the worst and would not change a single aspect of its program.

…AND ENDS, POSSIBLY, WITH THE ASIAN MODEL.