Russia and the IMF: A sordid tale of moral hazard

What the latter defense studiously ignored mentioning was the fact that the auditors had posted a big disclaimer regarding the contents of the report, which it warned against referring to as a proper audit: "PricewaterhouseCoopers accept no liability or responsibility to any party who may access the reports on the Internet, to whom the reports may be shown or made available or into whose hands they may come." The reasons are clear and to the point. As there had been no verification and no open access, the report reflected no more than a version of events that was presented by the party that stood accused of wrongdoing:

The reports are based solely on financial and other information provided by, and discussions with, the persons set out in the reports. The accuracy and completeness of the information on which the reports are based is the sole responsibility of those persons. PricewaterhouseCoopers have not attempted to verify the completeness or accuracy of that information. PricewaterhouseCoopers have not carried out any verification work which may be construed to represent audit procedures.57

It is hardly surprising that some of the world's leading media had nothing but harsh words to spare for the IMF. Le Monde editorialized that "in the style of vulgar swindlers, through companies installed in distant tax havens, one of the planet's big powers... misappropriates the international community's money, to facilitate the enrichment of a few oligarchs."58 The anger was prompted not only by the facts that were revealed in the report, but even more by the IMF's almost simultaneous decision to go ahead with further lending.

A couple of weeks later, the Wall Street Journal commented on the ensuing argument between the IMF and Le Monde: "The irony here is that the IMF isn't mad at Russia. It has forgiven Russia. The IMF is mad at the thinking world for not giving the IMF the same indulgence." And the paper concluded by pointing up the possible repercussions: "The IMF and the Kremlin kissed and made up but the rest of us are left wondering what the IMF's inclination to forgiveness has brought its shareholders--or Russia. As Le Monde put it, 'lending to Russia has become for the IMF a second nature, thus a dangerous habit. It could one day provoke the anger of the Western taxpayers.'"58

By summer 2000, however, Russia yet again had been forgiven. High oil revenues had allowed proper servicing of both Eurobonds and debts to the IMF. A deal had been reached with the London Club that entailed both rescheduling and a 33 percent write-off. The Paris Club still refused to write off debt, but it had agreed at least to restructure. The Russian government had revived to GKO market and was set to return to the Eurobond market. And an IMF mission to Moscow had proclaimed "pleasant surprise" at the rebound of the Russian economy.

Does all of this mean that the problems are over, and that Russia can look forward to being integrated into the world economy on what others consider to be normal terms? Or will there be more trouble around the next comer? What is the real bottom line of what has been said above?