INSIDE FINANCE: World Bank Coal Aid Means Step Back for Sector's Reform

It would seem that Russia's economic and political whirlwind bewilders not just Russians but international financial institutions as well. Only a temporary loss of consciousness can explain the World Bank's recent decision to offer Russia a second coal loan, despite all that is going on in the coal sector.


The gaping hole that is the Russian budget needs any loan it can get right now. After private investors fled in horror, the only hope of borrowing money has become credits from the International Monetary Fund and the World Bank.


The goals of the World Bank differ from those of the IMF. At the beginning, the bank was created for the financing of large state investment projects - the construction of dams, power stations, soil improvement and so on. More recently the bank has financed the restructuring of entire sectors, understanding that even the biggest building project won't make the economy effective. It was just this sort of program that was launched for Russia's coal sector.


The problems of coal miners in Russia are easy to understand but difficult to solve. The mines need to be privatized and unprofitable ones shut down. The miners then need to be found work that is just as profitable but more useful. Moreover, the administrative system governing the sector, which has grown fat on subsidies, needs to be cut back.


It was toward this end that the World Bank gave its first coal loan of $500 million in 1996. Negotiations took place on a second coal loan and, meanwhile, the governments of Viktor Chernomyrdin and Sergei Kiriyenko waged war against the coal bosses to restructure the sector along market lines. The government liquidated Rosugol, which had served the function of a ministry for the sector. Subsidies for unprofitable mines were cut and social programs were launched to assist miners adapt to the changes.


Yevgeny Primakov's government, however, has taken a completely different approach to the coal industry. Yury Malyshev, an adviser to Primakov and the former head of Rosugol, has played a major role in this new approach. His desire to return to his previous role as one of the most powerful of the coal generals has led to the creation of a new super-department with the humble name of the Coal Committee.


This department concentrates in its hands much unseen administrative power. First of all, it has control of all of the government's stakes in the mines. Second, it will be in charge of the distribution of the subsidies, which are this year planned to increase to 12 billion rubles. But to the Coal Committee founders, this seemed too little.


It is unknown from what depth of the communist consciousness came the proposal currently being considered for state licensing of coal trading. The authors of the plan would prefer not to notice that coal is not among the products for which state permission is necessary before they can be traded.


As a proponent of the market economy, the World Bank should have been alarmed by these new developments. In fact, the reaction of the bureaucrats in Washington has been quite tame. The latest round of talks on the loan were completed successfully in Moscow this week. Of course, in the final protocol, the World Bank's experts recorded that they weren't particularly happy with the government's latest actions. But this type of gentle rebuke will never be the cause for a refusal of the loan or result in any pressure on the government in the future.


What's more, it seems as if Washington would like to see a deal on this loan before an agreement is reached with the IMF. And even though the coal loan is real investment and won't go toward the budget, the situation is unprecedented. Money has previously only been given to the Russian government on condition of a rational macroeconomic policy. The intention to give the coal loan practically signifies the World Bank's approval of the marvelous innovations of State Tax Service chief Georgy Boos, or of the distribution of state funds to bankrupt oligarchs.


All of this looks like the interests of the Russian coal sector have fallen victim to the ambitions and intrigues of Washington bureaucrats. The directors of intergovernmental finance organizations, it would seem, more than anything fear looking incompetent when it comes to Russia. For that reason, the World Bank would like to distance itself from the talks with the IMF and create the illusion of constructive cooperation with the Communist government. The price of this is the complete retreat from that same reconstruction of the sector along market principles that had begun to be carried out over the last few years because of World Bank efforts.


But this will not solve the miners' problems. The sound of helmets pounding will be heard in Kemerovo and Moscow, but not in Washington.


Irina Yasina was Central Bank spokeswoman under previous Central Bank chairman Sergei Dubinin.