NEWS ANALYSIS: Bank Reform Plan a Paper Tiger

When the International Monetary Fund and Russia agreed on a list of top economic policies to pursue, the only area lined out in any detail was reform of the failed banking system.

Quite right too. Anyone attempting to fix the nation's economic woes would have to place prime emphasis on creating a working banking sector.

The IMF-approved game plan includes the following:

?The Central Bank pledged in writing to stop "all targeted lending to specific sectors of the economy, including through earmarked lending to commercial banks." It also promises not to provide any new bank stabilization loans "or otherwise provide long-term credit to insolvent banks."

?Both the Central Bank and Prime Minister Sergei Stepashin's government have agreed to submit new legislation to the State Duma, the lower house of parliament, that would require banks to become more transparent. They would have to make annual public disclosure of key financial indicators; have annual accounts prepared and audited by a qualified firm; and publish quarterly reports.

?The government and the Central Bank also vow to introduce legislation to give sole responsibility for restructuring banks that receive public funds to the Agency for the Restructuring of Credit Organizations, or ARKO.

?Finally, state-owned Sberbank is singled out for attention. The program pledges a full and proper audit of the bank's operations and promises to come up with ways "to establish a level playing field for Sberbank to operate in a competitive environment."

These promises were offered up almost ritually, as part of the rain dance for more IMF cash. It's anyone's guess whether any of this will come about.

For one thing, the government can promise all it wants, but there is still the Duma to be reckoned with f amid an election season unlikely to focus lawmakers' minds on legislation.

Also, for all of the grand talk of transparency, the Central Bank in particular remains as opaque and inscrutable as the gnomes of Zurich. The agreement claims that the Central Bank has already taken important steps to improve transparency.

But what has it? Chairman Viktor Gerashchenko has earned a reputation for obfuscation and obstruction over matters concerning the notorious Financial Management Corporation, or FIMACO. The only concrete improvement in transparency the government could cite was the Central Bank's June 1998 decision to start publishing weekly data on reserves.

Lastly, these promises amount to the victory of ARKO over the Central Bank in the struggle for control of Russian bank reform. And the Central Bank, which has jealously eyed ARKO's encroachment, is unlikely to be in a hurry to surrender that control.

The Central Bank speaks about "system-forming" banks f but again, the Central Bank is so nontransparent that it is hard to say exactly which banks these might be. SBS-Agro, Rosbank, Alfa Bank, Sberbank, Avtobank and Bank of Moscow would seem to belong.

SBS-Agro has received billions of rubles, both in stabilization credits and in agricultural loans it is supposed to pass on to farmers. In a less-than-impressive display of transparency, no terms for the loans have been announced, and statements from authorities and SBS-Agro bank officials contradict one another.

Those loans would now dry up, according to the IMF-won pledges. And SBS-Agro would be expecting either bankruptcy or to be handed over to ARKO. Neither prospect seems likely.

The Central Bank has also stood idly for months while banks moved their assets into new, hastily formed institutions, leaving behind the debts.

One-time banking giants are left as rotting hulks while those who led them into ruin reappear at the head of the "new" banks, often using the same buildings and wearing the same designer suits and Rolex watches.

That the Central Bank could countenance such an impudently public shell game does not speak well for its dedication to harsh new regulations.