Treasury secretary defends financial help to Russia; Republicans take offensive on money-laundering issue


WASHINGTON -- On the defensive over a growing Russian money-laundering scandal, the Clinton administration promised yesterday to press for international lending reform. But Republicans called the response inadequate and questioned continued U.S. support for Moscow.

In congressional testimony, Treasury Secretary Lawrence Summers urged Russia to fight harder against corruption and said the United States and other industrialized nations would push the International Monetary Fund at its annual meeting this week to adopt new accounting controls.

U.S. support for future IMF or World Bank assistance to Moscow depends on "Russia's compliance with crucial conditions to ensure financial integrity," including regular audits, said Summers.

Testifying before the House Banking Committee, Summers was the leadoff witness in the first of several inquiries by Congress into allegations that billions in Russian funds were improperly siphoned through the Bank of New York.

Republicans renewed attacks on the White House yesterday, accusing the administration of turning a blind eye to signs of corruption under President Boris N. Yeltsin.

"What I heard is a tepid response from the administration," said said Rep. Paul Ryan, a Wisconsin Republican on the Banking Committee. "The story is breaking continuously, and I think the administration is doing its best to downplay it. We're going to learn a heck of a lot more in the next month or two."

Banking Committee Chairman Jim Leach said he'll ask the General Accounting Office to perform a full audit of direct U.S. assistance to Russia and to review indirect aid through the IMF and World Bank. He also urged the Treasury Department to audit transactions between the IMF and Russia's central bank.

"Failure to do so would undercut any remaining credibility of international financial institutions dealing with Russia," said Leach, an Iowa Republican.

No evidence has surfaced to suggest that IMF money or other international aid was laundered through the Bank of New York. But the magnitude of IMF aid to Russia -- $22 billion in loans since 1992 -- has prompted speculation that some was misappropriated.

The Justice Department has not commented on the case, but news reports have indicated that at least $4 billion and as much as $10 billion was laundered through the Bank of New York.

The United States must continue to support Russia or "raise the risk that the United States and the West would be labeled as scapegoats for Russia's failure to address its problems," Summers said. "To quarantine, contain or write off Russia as too corrupt would ill serve our national interest."

Republicans, who have long been critical of the IMF and who see the current controversy as a Democratic weakness in the 2000 elections, would like to sharply curtail or withhold Russian aid in the hope that it would help spur reform.

"More bailouts will not work so long as you're bailing out the current system," Ryan said.

Nebraska Republican Rep. Doug Bereuter, a longtime proponent of IMF aid for Russia, recommended withholding any further funds yesterday.

Summers emphasized that any IMF money for Russia in the near future will be closely monitored. Because new IMF commitments will go toward refinancing existing Russian loans, he said, there is no possibility for improper diversion.

Separately yesterday, World Bank President James Wolfensohn said the bank has no evidence that its loans to Russia have been misused.

"We are in the midst of audits, with the full support of the Russian government," he said. "And if we come up with something we will announce it."

World Bank lending to Russia goes for specific purposes, such as modernizing industry or promoting legal reform. IMF lending is made to Russia's central bank, which is supposed to use the money to support the ruble or for other monetary purposes.

Investigations in Congress and elsewhere are focusing on transactions between the central bank and outside entities.

Pub Date: 9/22/99

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