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. Last Updated: 07/27/2016

Manager Graft Exacerbates Debt Crisis

The massive inter-enterprise debt crippling Russia's economy is to a large extent caused by factory managers withholding payments to earn interest on the money, officials of a commission formed to resolve the crisis said Friday.


Mutual debts have rendered many factories unable to pay their employees' salaries, resulting in strikes and layoffs across the country, and damaging production.


In July, industrial enterprises owed each other, the banks and the state budget a total of 112.3 trillion rubles ($52.7 billion), according to statistics presented to the commission. Of this sum, 48.1 trillion rubles was overdue.


Vladimir Samsonov of the State Statistics Committee, who provided data to the government commission, said half the debts were caused by factory managers who were withholding money that could be used to pay off their arrears.


Creditors can only start legal proceedings against a debtor when the payment is three months overdue, he said, adding that managers often exploit this loophole to deposit money with banks and then pay their debts just before the three-month deadline.


"They kill two birds with one stone," Samsonov said. "They get the interest from the bank, and they pay their suppliers with devalued money."


"The slackness of regulations has allowed these managers to do immoral things like this," he added.


A report circulated last week by the Federal Bankruptcy Agency said that a portion of the inter-enterprise debt had accumulated because some managers accepted bribes to supply goods for which their factories would never get paid.


The government commission, formed earlier this month under First Deputy Prime Minister Oleg Soskovets to deal with enterprises' mutual debts, ruled Friday that companies should present more detailed reports of their financial situation.


"We need more detail to understand whether the arrears are the result of mismanagement or some external reasons," said Valery Dalin, deputy chairman of the State Statistics Committee and a member of the commission.


Dalin said that the more detailed statistical reports required by the commission would help officials dealing with the inter-enterprise debt separate enterprises in real financial difficulties from those that were profiting from funds in their bank accounts.


"It's one thing when a manager has pulled money out of production and put it in a bank and another thing when a factory is owed a lot but has no cash," he said.


Dalin said the commission had been scheduled Friday to discuss the Finance Ministry's proposal that the government issue treasury bonds to settle the inter-enterprise debt, but the debate on the project was postponed.


Samsonov said that although measures to settle the mutual debt issue were necessary, the crisis has subsided since its high point in the summer of 1992, when the arrears were equivalent to 70 percent of Russia's gross domestic product. The current proportion is 10 percent.