David E. Sanger

This selection was excerpted from an article by New York Times staff reporter David Sanger, "As Economies Fail, the IMF Is Rife with Recriminations," published in the Times on 2 October 1998.

Moscow, 30 September 1998--The IMF should learn a lesson from the past five years. The IMF was pretending that it was seeing a lot of reforms in Russia. Russia was pretending to conduct reforms. The Western taxpayer was paying for it.
--Boris G. Fyodorov, Russia's former tax chief

The pattern [of Washington influencing the lending decisions of the fund when major American strategic interests are involved] was repeated this summer [1998], when the United States raced to put together a $17 billion package for Russia. The fund's staff in Moscow declared that Russia needed no money at all--it just needed to enact policies that would restore confidence in investors. The Americans and Germans came to a different conclusion.

Soon after, American officials gathered in the White House situation room to consider what might happen to Russia if the ruble was devalued and market reforms collapsed and to push the IMF to come up with emergency money. So the fund began assembling a last-ditch program to prop up a country that had resisted its reform plans for seven years.

IMF officials say Michel Camdessus [managing director of the IMF] was still hesitant, questioning whether the fund should risk its scarce resources in Russia. "We had to pull Michel along," a United States official recalled, though Lawrence Summers [deputy secretary of the U.S. Treasury] denied it.

As it turned out, Mr. Camdessus's instincts were right while the bet made by Robert Rubin [secretary of the U.S. Treasury] and Mr. Summers quickly went sour. The first installment of that payment--$4.8 billion--was wasted, propping up the currency long enough, in the words of one fund official, "to let the oligarchs get their money out of the country." Then [on 17 August 1998] Boris Yeltsin reversed his commitments, let the ruble devalue anyway, began printing money with abandon, [effectively defaulted on the government debt], and fired virtually every reformer in his government--resulting in a collapse of the IMF agreements and the indefinite suspension of its aid program.

Now, inside the fund and on Capitol Hill, there are recriminations over "who lost Russia."

Stanley Fischer [first deputy managing director of the IMF] argues that "there are no apologies owed for what we attempted in Russia." But some fund officials complain privately that they let Mr. Rubin and Mr. Summers run roughshod over them, striking a deal that fell apart within weeks as the Russian parliament rebelled and Mr. Yeltsin backed away from his commitments.

Mr. Summers responds that the United States "took a calculated risk" because "it was vastly better that Russia succeed than not succeed."

The Russian collapse touched off new rounds of economic contagion, with investors fleeing Latin America, and setting off huge losses in hedge funds like Long Term Capital, the Greenwich, Connecticut, investment firm that needed to be rescued by Wall Street powerhouses whose money it had invested.

"Russia was a turning point," said Robert D. Hormats, the vice chairman of Goldman, Sachs & Company. "It made the world realize that some countries can fail, even if the IMF and the Treasury intercede. And that changed the perception of risk."