#6143
#6
Financial Times (UK)
March 19, 2002
Editorial
Viktor loses
Vladimir Putin, Russia's president, has sent a signal that he is at last serious about financial sector reforms. The decision to remove Viktor Gerashchenko, the conservative central bank governor, will not by itself open the floodgates to modernisation. But it shows the Kremlin is willing to give reform a chance.
Sergei Ignatiev, Mr Gerashchenko's successor, inherits an economy that is growing fast, fuelled by energy exports. The rouble and currency reserves are strong. Mr Ignatiev has a good opportunity to accelerate financial sector reforms, especially in banking. The Russian economy has managed extraordinarily well without proper banking since the 1998 crisis shattered public faith in banking, leaving the state-controlled Sberbank dominant. But the country cannot develop a modern economy without a broad-based banking system.
Mr Ignatiev's priority should be to strengthen privately owned banks by raising minimum capital requirements and forcing a cull among the existing 1,300 institutions. The survivors should create a deposit insurance scheme, probably with some degree of state backing.
Bank ownership should be clearly separated from the ownership of other forms of business. Among the worst features of the 1998 crisis was bank owners raiding deposits to finance losses in other investments. Mr Ignatiev must try to stop history repeating itself. Russia's business oligarchs must choose whether to follow JP Morgan or Andrew Carnegie. They cannot be both.
Next, Mr Ignatiev must reduce Sberbank's dominance. This cannot be rushed, as it runs the only national financial network. But Sberbank's 80 per cent share of retail deposits stifles competition. The Kremlin should prepare for some form of break-up and the privatisation of the central bank's 63 per cent stake.
Foreign investors can play a valuable role by bringing expertise. Foreign-owned banks could also help Mr Ignatiev dilute oligarch capital in banking.
None of this will transform Russian banking overnight. Russians will continue to keep a big share of their savings under mattresses until they have much greater faith in business, public administration, tax officials and the rule of law. But banking reform is a necessary part of the whole picture.
The international community can play a modest role by encouraging Moscow to liberalise financial services during its negotiations to join the World Trade Organisation. Mr Ignatiev may occasionally find the WTO application a useful stick with which to beat domestic critics. But this is principally a challenge that Russians themselves must meet.
Back to the Top Next Article
- Back to the Top -