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. Last Updated: 07/27/2016

Primakov Calls for Bank Reform

Moving to answer International Monetary Fund demands that Russia clean up its disastrously gridlocked banking sector, Prime Minister Yevgeny Primakov called Wednesday for the bankrupting of numerous "banking bums" that are paralyzing the economy.

Primakov told a banking conference that after months of muddling reform it was time to ditch weak banks after the sector was near-mortally wounded in an August 1998 financial crisis.

"Most important in the short term is to clean the banking sector of banking invalids, of half-dead banks, of the banking bums," he said.

Looking at Central Bank chairman Viktor Gerashchenko and other bankers, he added: "The majority of restructuring needs and should be done on a commercial basis."

The prime minister's unusually hard line on banking came after word earlier in the day that the International Monetary Fund would be pressing Russia for real restructuring of its banking sector during this week's loan talks.

"If an agreement is reached with the IMF, there will be some pretty tough conditionality on implementing [a restructuring] program," David Hexter, vice president at the EBRD in charge of financial institutions said at a news conference in London, Reuters reported.

The EBRD is involved in talks with the IMF and World Bank on Russian bank reform, as well as in creditor committees working to unravel the mess created by last August's financial collapse.

Citing a World Bank report, Hexter said all but three of Russia's 18 major banks were insolvent.

Analysts say two of the top rated Russian banks are state-owned Sberbank and Vneshtorgbank and some estimate that up to $20 billion will be needed to clean up the mess.

Hexter declined to identify the three solvent banks. Meanwhile, the head of the World Bank, James Wolfensohn, arrived in Moscow on Wednesday for fresh loan talks.

Wolfensohn is due to meet Prime Minister Yevgeny Primakov, to talk by telephone with President Boris Yeltsin and to meet other key officials.

The government wants to finalize the restart of a World Bank structural adjustment loan program worth $1.5 billion, of which $300 million was disbursed before the August events.

Russia, cut off from the world's financial markets by its crisis and default on domestic debt, needs credits from the World Bank and IMF. It hopes to get at least $4.8 billion from the IMF as well as the World Bank funds.

Wolfensohn's visit is taking place at the same time as a mission from the IMF is in Moscow to thrash out the details of an economic plan that could be approved by the fund as the basis for a resumption of lending. IMF agreement of the plan is also a condition of resumed World Bank lending.

The biggest bar to agreement between Russia and the IMF remains the government's economic policies, including its tight restrictions on ruble convertibility and its failure to act effectively on fixing up the financial sector.

In addition to splurging nearly 18 billion rubles ($724 million) in long-term credits on 15 banks, according to figures released at the conference, Russia has set up several organizations to reform the banking sector but none of them have made any real progress.

The Central Bank revoked only 47 banking licenses in January and February, Gerashchenko said, adding that only 146 operating credit organizations had indications of insolvency.

Gerashchenko defended himself against Primakov's criticisms, which have also been made by numerous banking analysts.

"I disagree a bit with the statement by the head of the government that the restructuring is going too slowly in our country and with the wish of many leaders that bank licenses be withdrawn quicker," he told the bankers. "In our view, this informal approach cannot be taken. It is necessary to observe the necessary legal procedures."

Gerashchenko and Primakov did agree that foreign capital is needed to jump start the banking system, badly damaged last August after the government devalued the ruble and froze its sovereign domestic debt, a key asset for local banks.

They both spoke in favor of raising the limit on foreign banks' share of of total banking capital from 12 percent to 25 percent.