Russia's banks face 'health check'

The debt default in 1998 caused chaos

By James Schofield in Moscow

An inspection team from the International Monetary Fund (IMF) and the World Bank start work in Moscow on Wednesday on what is described as a "comprehensive health check-up" of Russia's shaky financial sector.

The mission will identify the strengths and weaknesses of the country's financial systems and determine how potential risks to the system are being managed.

It will also address specific concerns such as creditor protection, bankruptcy regulations and the problem of rampant money laundering in the country.

Last year the Paris-based Financial Action Task Force (FATF) blacklisted Russia for failing to deal with the problem of money laundering.

Tackling dirty money

Financial experts estimate that about $20bn (£14bn) was spirited abroad from Russia last year alone.

The Russian government has since passed legislation to address the issue and established a Financial Monitoring Committee to investigate thousands of suspicious transactions.

But last month FATF representatives said insufficient steps were being taken to tackle the problem.

Last week Alexander Shokhin, the head of the State Duma's banking committee, said that it was unlikely that Russia would be removed from the blacklist before February 2003.

Banking reform

The IMF review will also subject the country's financial institutions to "stress tests" to assess how well they would handle economic shocks.

Russia has been widely criticised for failing to implement much needed banking sector reform during years following the devastating debt default of 1998, which plunged the industry into chaos.

Last month the Russian parliament approved the appointment of Sergei Ignatyev, a widely respected finance ministry technocrat, as the new chairman of the central bank.

Analysts welcomed Mr Ignatyev's arrival as heralding the start of the long-awaited reforms in the banking sector.

His predecessor, Viktor Geraschenko, was seen as a key obstacle to reform.

The monitoring team plans to meet with central bank officials to discuss the latter's monetary and credit lending policies and also with the ministry of finance to discuss internal and external debt management.