#6
Business Day (Johannesburg)
March 19, 2002
HONEST CIPHER FOR CENTRAL BANK
By John Helmer

President Vladimir Putin has surprised the Russian banking community, and global emerging market analysts, by dismissing the Central Bank chief Victor Gerashchenko, and replacing him with a man, who despite a decade of holding senior finance policy posts in Moscow, is totally unknown to have opinions of his own.

Sergei Ignatiev, 54, currently deputy finance minister, was named by Putin after the markets closed on Friday. According to parliamentary deputies, he will be confirmed as the new chairman of the Central Bank without opposition; the vote is scheduled for Wednesday.

Putin's latest appointment follows a string of similar appointments of unknown middle-aged bureaucrats to such posts as chief executive of the state-owned diamond company, Alrosa; and the ministers of railways, energy, and natural resources.

Roland Nash, strategist for Moscow investment bank Renaissance Capital, said Monday that Ignatiev's penchant for wearing the same Soviet-made suits for a decade is a signal of his "immunity to the lucrative extra-curricular activities available in the Ministry of Finance."

A Kremlin source told me that Putin is unable to find capable and honest policymakers he trusts. "He is being forced," the source said, "to settle for loyalists who can be trusted to run their organizations predictably, but who do not have the strength to challenge the vested interests." Putin will be unable to do that until after next year's elections, the source claimed.

The firing of Gerashchenko as Central Bank chairman eliminates the last surviving officeholder of the Yeltsin presidency, except for one -- Alexander Voloshin, the president's chief of staff. Kremlin sources have been saying that Putin wants to get rid of him, but cannot find a suitable replacement.

Voloshin claimed Monday Gerashchenko, 64, had retired because he is unwell.

Gerashchenko was recalled to run the Central Bank in 1998, after the government and commercial banks defaulted on their obligations, and his predecessor was allegedly implicated in the looting of state funds, including the proceeds of a $4 billion loan from the International Monetary Fund. By cracking down on Russian export transactions, Gerashchenko rebuilt Russia's international reserves to over $38 billion.

However, his resistance to new legislation that would have made the Central Bank more accountable for its internal operations led him into a bluff with government officials, in which he said he would resign if he wasn't supported. To Gerashchenko's surprise, Putin decided to call the bluff, and replace him.

Gerashchenko's downfall has been endorsed by Russian commercial bankers, and some industrialists. The bankers say they want a "reform" Central Bank chairman in place as they try to promote less stringent supervision of their foreign exchange dealings. The Russian industrialists say they want to see swifter depreciation of the rouble to improve their export sales.

Ignatiev is reportedly favoured by officials at the International Monetary Fund with whom he has been negotiating since 1992. In his early days at both the Finance Ministry and the Central Bank, Ignatiev was in charge of implementing the US-ordered plan to cut ties between the Russian Central Bank and the central banks of the former Soviet republics. With backing from the IMF, that plan aimed to dismantle the rouble zone, and make irreversible Finance Minister Yegor Gaidar's scheme to destroy the economic infrastructure of Soviet finance. That's what reform meant a decade ago.