Global Policy Forum

By Paul Taylor

London - Western governments are trying to limit the political damage from investigations into alleged Russian laundering of international financial aid rather than questioning their support for President Boris Yeltsin. As details emerge of separate probes into the alleged recycling of Russian funds through the Bank of New York and into reported links between Yeltsin's own entourage and a Swiss construction company, Western leaders have sought to avoid blame rather than publicly rethink their policy.

``Like any politician in trouble, their main reaction is to cover their backs,'' said Sir Rodric Braithwaite, who was British ambassador to Moscow in 1988-92. "The fact is that everybody has known for several years, inasmuch as such clandestine activities can be known, that vast chunks of money were being exported illegally from Russia and ending up in accounts in Switzerland and elsewhere. ``For people to stagger around now saying 'good gracious' is rather absurd,'' Braithwaite, now an adviser on Russia to Deutsche Bank, told Reuters in an interview.

Western officials acknowledge they turned a blind eye to corruption and widely assumed abuses of financial aid because Yeltsin pursued a largely pro-Western foreign policy and was a bulwark against the return of the Communist Party to power. Defending past aid, they cite other concerns such as keeping the former Soviet nuclear arsenal under control and preventing a destabilising breakup of Russia. Many contend that The Economist magazine's description of Russia as ``the world's leading kleptocracy'' is exaggerated and argue that despite the warts of crime and corruption, Russia is still on the road to becoming a free-market democracy.

The political fallout seems most damaging in the United States, where Vice President Al Gore's Republican opponents have seized on his close ties with Russia's leaders and his support for aid to Moscow as ammunition against his presidential bid. But the probes could also embarrass European leaders such as French President Jacques Chirac, who advocated continued financial aid to Moscow and lent strong personal support to Yeltsin despite growing reports of corruption, money laundering and economic mismanagement. ``It is hard to see how President (Bill) Clinton, Gore and (Deputy Secretary of State) Strobe Talbott can escape blame for their past policy,'' said Anatol Lieven, an expert on Russia at the International Institute for Strategic Studies.

Western aid might have been justified on political grounds in 1995-96, when there was a genuine fear of the Communist Party returning to power through the ballot box, he said. But the political credit of the Clinton administration became too bound up with Yeltsin personally, and Washington was ``blinded by its own rhetoric that the free market and privatisation had to work everywhere,'' Lieven said. Lieven said disclosures about the laundering probes were not unwelcome to officials in Western foreign ministries who wanted their governments to distance themselves from the ailing Yeltsin and prepare to work with a new leadership in Russia. Regulatory authorities in the United States and Britain are now investigating suspicions that Russian mobsters, businesses and senior officials may have funnelled more than $15 billion from Russia via the respected Bank of New York. Some newspapers say the money may have included International Monetary Fund aid.

The IMF says it has no evidence that its funds have been diverted or misused. The Swiss justice authorities are investigating separate allegations of Russian money laundering in connection with the Mabetex construction firm, which renovated Kremlin buildings, and have frozen a number of bank accounts. Yeltsin's office has strongly denied allegations that the president and his family may have benefited from money or facilities provided by Mabetex in Switzerland. The Russian government has said the probes are part of a political plot by hostile elements in the West to undermine confidence in Russia and Yeltsin.

U.S. Treasury Secretary Lawrence Summers said this week that Washington would not support the disbursement of further IMF aid to Russia without adequate safeguards and accounting for previous use of funds. But the Treasury hastened to say he was not calling for a halt to international aid. Chirac and German Chancellor Gerhard Schroeder both stressed that none of the allegations of laundering of IMF money have yet been substantiated. Schroeder could easily blame past profligate aid to Moscow on his conservative predecessor, Helmut Kohl. But his government has stuck to Kohl's line that Germany must support Russia financially to secure stability on its eastern borders. ``We can't afford for our relationship to sour substantially, nor can we afford instability in Russia,'' Foreign Minister Joschka Fischer said this week.

The IMF admitted in unusually blunt terms in July that the Russian central bank had lied to it in 1996 about the state of its reserves. But Managing Director Michel Camdessus said in an interview this week he saw no reason to stop the next payment of a $4.5 billion credit line that is essentially to enable Moscow to service its existing debts to the IMF.

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