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Viktor Gerashchenko |
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The row between the Kremlin and the Central Bank of Russia (CBR), brewing since last summer, has finally boiled over.
After six months of wrangling with the central bank, the government foisted a restructuring concept on it in December. Relations have since broken down completely just when it looked as if the plan might actually be implemented.
The first item on a long list of things to do was the transfer of Russia’s second largest bank Vneshtorgbank (VTB) – 99% owned by the CBR – to the state and the selling off of 20% to the EBRD in the process.
Fed up with the obstinate and inefficient CBR, the Kremlin has been taking more power into its own hands. It wants to get banks working to boost economic growth, while the CBR favours an evolution-over-revolution approach that leaves such banks as VTB dominating the sector.
Both sides agreed in principle that a VTB stake could be sold to the EBRD some time this year; roughly 20% is on offer for a reported $300 million. A banker close to the deal says the sale of a chunk of such a big state-controlled bank would be: “A major step forward in privatizing the Russian banking sector and the establishment of a real market economy in Russia.”
In January the Russian press revealed that president Vladimir Putin signed a secret decree at the end of last year to speed up the deal. Under the terms of December’s plan the CBR agreed to transfer control of VTB to the government by January 1 2003. However CBR president Viktor Gerashchenko has since tied the two together, threatening to block the EBRD sale unless the CBR can keep VTB until 2010.
The head of the CBR is in a strong position: he can’t be sacked by Putin and has minimal reporting obligations to the Duma. It makes him probably the most powerful man in Russia outside the Kremlin.
Putin has now agreed to reorganize VTB in two stages. In the first, 40% of VTB will be transferred to the state and 20% sold to the EBRD, with the rest remaining in CBR hands. The second stage requires the CBR merely to analyze the feasibility of complete or part privatization and to define the share of foreign capital, with no deadline.
“If haste will mean material losses for one of the parties, we prefer to take our time,” says Yuri Ponomarev, VTB’s head. This won’t sit well with the EBRD, which has been burnt several times by Russian banks.
Negotiations have yet to start, says Ponomarev, but analysts say the EBRD will be reluctant to pay for a VTB stake until its future is settled.
The compromise is a small victory for Gerashchenko, who looked to be on the ropes at the end of 2001.
However, he is fighting a rearguard action, as the mere existence of a bank plan shows. The Kremlin is making steady progress and Ponomarev says the reorganization of VTB’s ownership will happen “some time in the spring”.
“Putin is driven by the desire to get Russia Inc working again and to do that you need a working banking sector,” says Kim Iskyan, Renaissance Capital’s bank analyst. “That the Kremlin is willing to talk about foreign investors in the banking sector and has taken on the CBR only six months before Gerashchenko leaves suggests he has very little chance of staying in his job.”
