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. Last Updated: 07/27/2016

Kremlin Tells Central Bank to Ax Subsidiaries

The Kremlin has decided to strip the Central Bank of billions of dollars worth of assets in an overhaul that appears to be designed to appease the IMF.

The Central Bank will lose all of its foreign subsidiaries and its stakes in Sberbank and Vneshtorgbank, Tatyana Razbash, a spokeswoman for Prime Minister Mikhail Kasyanov, said Wednesday.

The foreign subsidiaries include Moscow Narodny Bank in London and Singapore, Eurobank in Paris and Ost-West Handelsbank in Frankfurt am Main, Germany. The Central Bank holds a stake of 55 percent in Sberbank, the nation?s largest savings bank, and a 99 percent stake in Vneshtorgbank.

The bank must give up its foreign assets by January 2002, Vneshtorgbank by January 2003 and Sberbank by 2005.

"A meeting has been held to address the issue after President Vladimir Putin held a discussion with Kasyanov about the issue," Razbash said.

The meeting, held Oct. 10, tackled the fate of the Central Bank?s commercial assets, which for years have been a sacred cow that nobody dared to touch. The meeting was attended by Kasyanov, Central Bank head Viktor Gerashchenko, Finance Minister Alexei Kudrin, First Deputy Property Minister Yury Medvedev and First Deputy Economics Minister Elvira Nabiulina.

The International Monetary Fund has insisted since 1998 that the Central Bank put its house in order by giving up its foreign subsidiaries.

A carefully worded resolution agreed upon at the Oct. 10 meeting contains hints of a struggle going on between the Central Bank and the government.

"Since the Central Bank did not have any major objections to the proposals of the Finance Ministry and the Economics Ministry, a decision has been made [to have the Central Bank] gradually pull out of Sberbank and Vneshtorgbank."

The Finance Ministry and the Central Bank have been given 30 days to draft a plan to implement the decision.

Vneshtorgbank and Sberbank did not seem concerned about the prospect of operating without the Central Bank.

"We?ve always been a state bank, so our status will not change," said Alexander Golovanov, a spokesman for Sberbank.

The Central Bank has for months been facing heat from the government for playing a major role in leading the country down the path to the 1998 financial crisis. Critics charge that the bank sloshed billions of dollars from the nation?s foreign exchange reserves to offshore accounts and used them to gamble against the government on the state bonds market.

The Central Bank managed to keep its head above water until mid-1998.

President Boris Yeltsin, at the encouragement of then-Central Bank chief Sergei Dubinin, even swore to the cameras on Aug. 14 that the country?s finances were squeaky clean.

But three days later, the financial markets turned to pulp.

Officials looked for a culprit to blame, and the Central Bank was a natural target. Under the law, the Central Bank is charged with keeping the exchange rate in check and monitoring commercial banks and settlements.

Clearly, with commercial banks going belly up and the ruble dropping like a stone, the Central Bank had not fulfilled its obligations, critics said.

Gerashchenko, who replaced Dubinin, kept the bank together until the Putin government took over.