For years now, officials of the International Monetary Fund (IMF), of Russia’s Finance Ministry, and of the Central Bank of Russia have been conducting a discreet conversation among themselves they intended no-one else to hear — at least not in Russia.
Mikhail Zadornov — who complained this was unprincipled and undemocratic when he was a member of parliament — defended the practice, once he joined the conversation. “It’s really not worth being discussed publicly,”Zadornov claimed last week, speaking to the Duma as Minister of Finance. That was a little echo of Victor Gerashchenko, the Central Bank chairman, who made his remark, also to the Duma, the week before.
The topic of the conversation that has embarrased the officials by being disclosed to Russia’s chief taw enforcement officer, its chief auditor, and its parliament, is what the Central Bank has been doing with its reserves.
Those reserves — consisting of foreign convertible currencies and precious metals — have been the focus of precise IMF auditing, ever since the IMF started lending money to the Russian government. That’s because of a secret provision in the IMF loan agreemens, and in the annual IMF-Russian economic programme. This sets a level of net reserves which the Russian government and Central Bank pledge to maintain at all times. Net is the term that means the value of cash and precious metal, less the value of the debts Russia owes to the IMF and the World Bank.
Within the IMF office in Moscow, there has always been one, sometimes more officials, whose job it is to monitor carefully the movement of cash and metals into and out of the Central Bank’s reserves. When, years ago, a Finance Minister (Boris Fyodorov) tried to add $500 million to the value of the reserves at the Central Bank, the IMF objected immediately. The Central Bank had “bought” the diamonds from the Finance Ministry’s Gokhran (treasury), so that the Finance Ministry could add roubles to the money supply, without lowering the net reserve level, or breaching the IMF’s money supply target, But the IMF disallowed the accounting move, and the diamond value, was subtracted from the reserve total.
That was five years ago — about the time, Russia’s parliament has now been told — the Central Bank was moving its currency reserves through offshore European banks it controlled, and into fronts those banks had created to churn the cash through their books, earning commissions. At least one of those money laundries has been identified— in a public manner officials of the Bank, the Ministry, and the IMF disapprove of.
How is it possible the IMF didn’t know what the Central Bank was doing with millions of dollars of cash reserves, if at the same time it was ready to pounce on $500-million line-items labelled diamonds?
The answer to that question is one Martin Gilman, the current IMF representative in Moscow, thinks is not. really worth discussing publicly, that would make him one of the monkeys who see no evil, hear no evil, etc: Were it not for a point the Procurator-General has suggested, regarding the movement of the Central Bank’s cash reserves — silence in the face of a crime is also a crime. Every time he opens his mouth to say nothing, Gilman makes himself an accessory — possibly a coconspirator— in a pattern of activity that is criminal under Russian law.
So what did Gilman say the other day, when he was asked what accounting rule the IMF applies to the Central Bank’s transactions with platinum and palladium?
“There is no answer,” Gilman said, tiptoeing carefully through a spokesman. “Not yet.”
Now the question has significance, because late last year, the Central Bank refused to allow the Accounting Chamber to audit its platinum and palladium reserves. The reason given by the Bank’s chief accountant at the time was that these precious metals are not counted in the Bank’s international reserves, according to the IMF definition.
We know that definition disallowed diamonds, and included gold. But gold has lost a good deal of its value on world markets in the past 18 months, while platinum and palladium have more than doubled. For the first time ever, palladium has become more costly than platinum; both metals are at least $60 per ounce more costly than gold.
So, it stands to reason that, when pressed by the IMF to raise its net reserve figure, the Central Bank would want to add the value of its platinum and palladium holdings; and what’s more, stock more of the metals, if it could.
When Moscow traders recently understood that the Central Bank was bidding to purchase platinum from Russia’s commercial banks, they believed the Bank had obtained the IMF’s agreement to count at least platinum, and possibly both platinum and palladium, in its reserve figures. What other value could the metals have for the Central Bank, the traders surmised, knowing the government won’t allow the Bank to export either metal abroad? Why pay dollars or gold the IMF counts in reserves for platinum that isn’t counted, and can’t be exported?
The official in charge of the Central Bank’s precious metals stocks has denied the rumour. He claims there has been no change — but then, like most Central bank officials, he also believes this is really not worth discussing publicly.
So the rumour is credible, and Gilman of the IMF can be suspected of trying to conceal it. Why he would do that is suggested by the magnitude of the figure which platinum and palladium would add to the reserve aggregate.
Bank officials refuse publicly to say that they are holding stocks of platinum and palladium. But leaked Finance ministry documents prove that monthly transfers of palladium to the Central Bank have at times reached as high as $500 million. The accumulation of palladium has been estimated in Russian press reports at 9.7 million ounces (330 tonnes), currently worth about $3.4 billiOlt. No estimate of the volume or value bf “the Central Bank’s platinum stock has appeared, though Moscow experts believe it unlikely to be more than 20 tonnes.
If this platinum and palladium are now being included in the Bank’s reserves, they are likely to add between $3 billion and $4 billion to the current precious metal figure. Counting only gold, this stood at around $3.9 billion last November.
Last August’s rouble devaluation caused a massive drop in Central Bank currency reserves — and this decline has continued into this month. The combined total of Russia’s currency and precious metal reserves has now fallen below the $12 billion mark, officials say.
If the rumour of the accounting change were true, addition of platinum and palladium would mask much deeper currency losses than the Central Bank has so far acknowledged. These losses are currently under Investigation by the Accounting Chamber, and by criminal investigators of the Procurator-General’s office.
Experts believe that, in normal accounting practice, masking losses by and disclosed accounting changes could not remain secret for long. The IMF, for one, would be expected to be the first Jo report it. If Gilman is pretending to see nothing, in order to say nothing, it would not be the first time he’s played the monkey in Russia.