#11
Asia Times
July 18, 2002
No silver lining in Russia's finance ministry
By John Helmer

MOSCOW - There is no better test of the maxim that absolute power corrupts absolutely than Russia's Ministry of Finance. Take the silver tax of May 1999, for example, and its predecessor in absolute folly, the silver edict of France's Louis XIV of May 1709.

At that time, Louis's treasury was empty, and his armies and administration impoverished. The desperation was finding expression each night in Paris, where statues of the king were defiled and lampooned. The Duchesse de Gramont conceived the idea of ingratiating herself in court by making a public offer of donating her silver dinner service to be melted down for the treasury, and used to fund the army's expenses. The controller-general understood the folly of the idea, but the number of courtiers seeking the king's favor was so great that the mint was struck by an avalanche of table silver. Too much, in fact, for Louis to have the time to read and remember all of the names on the lists of the ambitious donors.

Within weeks, the French nobility started to eat off porcelain, thereby starting the fashion for Moustiers, the uniquely French source of porcelain in Provence. And that in turn started the destruction of the southern forests from which Provence did not recover until very recently. But that's another story.

It didn't take Louis long to realize that the nobles were cheating. The Duchesse de Gramont herself was discovered to have kept her good silver hidden under lock and key, after donating all her old plates. The king then announced the silver idea had been colossally stupid, and that he was sorry he had ever agreed to it. To the historian of the time, the Duc de Saint-Simon, the silver episode was worth telling as an illustration of how badly the kingdom was managed.

If Europe's greatest despot took just three months to realize his mistake, it has taken the Russian Finance Ministry more than three years. Even now it refuses to yield to the consensus in the mining and banking communities that, as with the gold tax which the government abandoned on January 1, the measure to tax silver has failed to collect significant revenues. A decision by cabinet ministers to recommend the abolition of the silver tax was taken on July 8. A final decision will be taken next month. In the meantime, officials at the Finance Ministry continue to refuse requests to disclose how much revenue the gold and silver taxes have generated for the treasury since they were introduced.

According to figures provided by the Central Bank and confirmed by Russia's commercial banks, virtually all the gold exported from Russia has avoided payment of the 5 percent gold tax because it has been transferred to Belarus, which is linked in a duty-free customs union with Russia. Silver trading has also been channeled through Belarus to avoid payment of the 6.5 percent export tax on that metal.

The government classifies production of silver, but not gold, as a state secret, and it is thus difficult to obtain reliable estimates of the annual production and export volume. According to a world survey of the Silver Institute in London, Russian production of silver was 628 tonnes in 2000, and 624 tonnes in 2001. This makes Russia the 10th largest silver producer in the world, narrowly following Kazakhstan, but well behind leaders Mexico (2,824 tonnes) and Peru (2,674 tonnes).

Moscow bank and mining sources estimate that most Russian silver is exported. According to Russian customs data, 462 tonnes of silver were exported last year. But just 61 tonnes were shipped directly abroad without passing through Belarus; this is the volume that was charged the Finance Ministry tax. At the prevailing price of silver, the shipments would have been worth about US$9.6 million. Accordingly, the tax payable on that would have been $624,626. It's likely the paperwork to process such a minuscule amount would have cost more than the revenue collected. But the Finance Ministry will admit nothing. Like the Duchesse de Gramont, there is no accounting for greed fired by ambition for power.

The Finance Ministry has been the only duchy that the Kremlin has ignored in President Vladimir Putin's two-year effort to bring the government apparatus under control. Unlike Louis XIV, though, Putin has probably never been told the story of the silver tax, and thus he's been unable to judge what a mockery the ministry makes of his administration.

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