Doc, DOC. PrEx 3.10/7: LDA90-13125 Directorate of Intelligence The Soviet Banking Industry: Blueprint for Change A Reference Aid L • • v* •" ILL J .(3KARY AT URw 4^ CHAMPAIGN LCOKSTACKS LDA 90-13125 May 1990 DOC. PrEx LDA90 Directorate of Intelligence The Soviet Banking Industry: Blueprint for Change A Reference Aid Tha Ubr a JU i 3 C f. ILL! AT URw .Ur, ur ..3RARY L/H AMPAIGN UCOKSTACKS LDA 90-13125 Mav 1990 This publication is prepared for the use of US Government officials, and the format, coverage, and content are designed to meet their specific requirements. US Government officials may obtain additional copies of this document directly or through liaison channels from the Central Intelligence Agency. Requesters outside the US Government may obtain subscriptions to CIA publications similar to this one by addressing inquiries to: Document Expediting (DOCEX) Project Exchange and Gift Division Library of Congress Washington, D.C. 20540 or: National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 Requesters outside the US Government not interested in subscription service may purchase specific publications either in paper copy or microform from: National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 (To expedite service call the NTIS Order Desk (703) 487-4650) or: Photoduplication Service Library of Congress Washington, D.C. 20540 03C- Pc t* 3.10/7/ l-QMD-131 a5" The Soviet Banking Industry: Blueprint for Change KEY OFFICIALS THE EXISTING SYSTEM THE PROPOSED CHANGES ( V V 7 - X Viktor Gerashchenko Chairman, Gosbank . . . leading proponent of transforming Gosbank into Western-style central bank . . . calls for price reform and reasonable tax policy before fully converting ruble - - - longtime international banker; has served in almost all Soviet overseas banks . . appointed August 1 989 born 1 937. The 1987 Banking Reforms Gosbank relinquished control of lending and day-to-day operations to five specialized banks . . . development of commercial banks began. USSR Council of Ministers Yuriy Moskovskiy Chairman, Vneshekonombank, (VEB) . , oversees currency auctions to pave way for ruble convertibility . . . has increased network of VEB representative offices worldwide . . has held positions in government and in VEB's predecessor organization . . . appointed 1987 . . born 1942. Viktor Bukato Chairman, Zhilsotsbank . . . sector is receiving greater amount of government investment . . . places lending priority on defense enterprises converting to consumer production . . . most of career in former Stroybank (Construction Bank) . appointed 1987 . . . born 1939. Aleksandr Obozintsev Chairman, Agroprombank . . provides excessively low interest rates to collective and state farms . . . headed Ukrainian office of Gosbank during Brezhnev era . . . appointed 1987 . . . born 1931. Mikhail Zotov Chairman, Promstroybank . . has called for more cautious lending policies . . . was criticized in press for favoring strict government control over investment, banking . . chaired predecessor organization (Stroybank) 1973-87 . appointed 1987 . born 1915 A State Bank (Gosbank) 4 w Ministry of Finance Regulates money circulation; helps ^ w Compiles state budget; with Gosbank establish credit, monetary policy. develops financial and credit policies. j-f. A Commercial Banks Formed by cooperatives, industrial enterprises, venture capitalists . . . relatively free to set own interest rates. Legend A State Bank A International Banks A Domestic Banks _ Subordination -Supervision 4 _* Coordination A Specialized Domestic Banks Controlled by government . . . each bank covers specific sector of the economy . . . must provide low interest rates to keep unprofitable enterprises afloat. Agroprombank Principal financial institution in rural areas . . . services state and collective farms, cooperatives, food industry enterprises. Promstroybank Supplies capital investment loans to construction, transport, communications, and heavy industries . . . lends only to state enterprises. Sberbank Main institution for individual savings and credit . . . has been brought under tighter control by Gosbank in response to unrest in Baltics. Zhilsotsbank Funds municipal organizations, housing construction . . . major source of loans to private cooperatives, individuals, disaster relief organizations. International Banking A Vneshekonombank (VEB) Oversees all foreign trade operations . . . with Gosbank supervises activities of overseas banks, transactions with Third World. A Soviet-Owned Overseas Banks Operate under local country practices but are managed by Soviets . . . foster trade between USSR and West. • Banque Commerciale pour I'Europe du Nord (Eurobank, BCEN) (Paris) • Donau Bank (Vienna; representative office, New York) • East-West United Bank (Luxembourg) • Moscow Narodny Bank (London) • Ost-West Handelsbank (Frankfurt) Banks for OEM A Trade Extranational banks for members of Council for Mutual Economic Aid (CEMA) . . . headquarters in Moscow. International Bank for Economic Cooperation (IBEC) International Investment Bank (MB) Proposed reforms have been drafted since December 1989. A Autonomy for Gosbank • Transform into Western-style central bank with control over credit, monetary policy. • Begin regulating financial operations of economy through market methods, such as obligatory reserves, variable interest rate. A Development of Commercial Banking • Grant commercial banks—which now hold only 2 percent of all banking assets—freedom to begin direct foreign operations. • Open capital and security markets. • Increase interest rates. • Place specialized banks on commercial footing. • Maintain some restrictions on interest rate policies. Other reforms have affected the banking industry. A Ruble Convertibility • Expect price reform to precede ruble convertibility. • Hold limited auctions of rubles for hard currency as step toward convertibility. • Set more realistic exchange-rate policy, including greater devaluation of ruble, for short term. A Republic Autonomy • Baltic republics developing own financial and credit network as part of regional autonomy program enacted in January 1990. • Estonia and Lithuania forming own state banks; facing substantial pressure from Gosbank to reverse decision. LDA 90-131 25 May 1990 This publication is prepared for the use of US Government officials, and the format, coverage, and content are designed to meet their specific requirements. US Government officials may obtain additional copies of this document directly or through liaison channels from the Central Intelligence Agency. Requesters outside the US Government may obtain subscriptions to CIA publications similar to this one by addressing inquiries to: Document Expediting (DOCEX) Project Exchange and Gift Division Library of Congress Washington, D.C. 20540 or: National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 Requesters outside the US Government not interested in subscription service may purchase specific publications either in paper copy or microform from: National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 (To expedite service call the NTIS Order Desk (703) 487-4650) or: Photoduplication Service Library of Congress Washington, D.C. 20540