The odious debt of Russia, the new oligarchs and the Bretton Woods institutions

8 March 2004 by Eric Toussaint

Eric Toussaint is a historian and political scientist, president of CADTM (Committee for the Abolition of Third World Debt), member of the International Council of the World Social Forum, and of the scientific committee of ATTAC in France. He is the author of Your Money or Your Life. The Tyranny of Global Finance. He is coauthor with Damien Millet of The Debt Scam. IMF, World Bank and the Third World Debt, VAK publication, Mumbai, 2003, 150 pages.

While Anne Krueger was giving her talk (see: Anne Krueger, the White Knight of globalisation), the new Russian capitalists, or oligarchs as they are known, and their shady dealings had come up against the law, shaking Russia to its very foundations. The Russian judicial system was prosecuting them for murder, theft of public property, conspiracy, corruption, etc. The oligarchs accumulated a colossal fortune in just a few years with the direct support of the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
, the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, the governments of the Triad (especially the US, British and German governments), major private banks and clearing-houses like Clearstream.

These oligarchs emerged as a result of the implosion of the bureaucratic system of the East and capitalist restoration in the late 1980s and the 1990s. The US government, the IMF and the World Bank gave their active support to the Russian president, Boris Yeltsin (and partly guided his footsteps) in the rapid and gigantic wave of privatisations that he imposed on Russia. Those privatisations constitute the systematic pillage of Russia’s public goods in favour of the oligarchs and a few MNCs of the Triad.

The Russian oligarchs used brutal and criminal methods like those used by the “robber barons” in the United States at the end of the late 19th and early 20th centuries. History repeated itself, as once again primitive capitalist accumulation took place in violence and chaos. But history does not repeat itself - this time, the pillage was carried out under the high protection of international multilateral bodies with multiple missions by economics experts and multilateral loans to facilitate “the transition from a planified economy to a market economy”, to use the expression favoured by the Bretton Woods institutions.

In chapters five and six of his Globalisation and its Discontents we read Joseph Stiglitz’s sharp analysis of the transition in Russia. He denounces the responsibility of the IMF and the US Treasury, which supported, counselled and guided the Russian bureaucrats converted to capitalism, especially the president, Boris Yeltsin. There was nothing democratic about the methods used.

“It is not surprising that many of the market reformers showed a remarkable affinity to the old ways of doing business: in Russia, President Yeltsin, with enormously greater powers than his counterparts in any Western democracy, was encouraged to circumvent the democratically elected Duma (parliament) and to enact market reforms by decree”(J. Stiglitz, 2002, p. 136). Public companies went for a song. “(...) the government, pressured by the United States, the World Bank and the IMF to privatise rapidly, had turned over its State assets for a pittance (...)” (ibid., p. 145).

Privatisation was a vast act of pillage that benefited the oligarchs who invested part of their booty in the West, so that it was laundered and out of reach of the law. “Privatization, accompanied by the opening of the capital markets, led not to wealth creation but to asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). -stripping. It was perfectly logical. An oligarch who has just been able to use political influence to garner assets worth billions, after paying only a pittance, would naturally want to get his money out of the country. Keeping money in Russia meant investing it in a country in deep depression, and risking not only low returns but having the assets seized by the next government, which would inevitably complain, quite rightly, about the”illegitimacy“of the privatization process. Anyone smart enough to be a winner in the privatization sweepstakes would be smart enough to put their money in the booming US stock market, or into the safe haven of secretive offshore bank accounts. It was not even a close call; and not surprisingly, billions poured out of the country.”(ibid. p. 144).

The IMF and the World Bank got Russia into debt. A large part of the money lent has been embezzled and is back in the West. Western bankers, Russian oligarchs and government officials got rich while the impoverished Russian citizens have to foot the bill. “When the crisis hit, the IMF led the rescue efforts, but it wanted the World Bank to provide $6 billion of the rescue package. The total rescue package was for $22.6 billion. The IMF would provide 11.2; the World Bank would lend $6 billion; the rest would be provided by the Japanese government. This was hotly debated inside the World Bank. There were many of us who had been questioning lending to Russia all along. (...) In spite of strong opposition from its own staff, the Bank was under enormous political pressure from the Clinton administration to lend money to Russia. (...) Remarkably, the IMF seemed able to overlook the corruption, and the attendant risks with what would happen with the money. (...) When the IMF was confronted with the facts - the billions of dollars that it had given (loaned) Russia was showing up in Swiss and Cypriot bank accounts just days after the loan was made - it claimed that these weren’t their dollars. (...) By lending Russia money for a doomed cause, IMF policies led Russia into deeper debt, with nothing to show for it. The cost of the mistake was not borne by the IMF officials who gave the loan, or America who had pushed for it, or the Western bankers and the oligarchs who benefited from the loan, but by the Russian tax-payer” (ibid. pp. 148, 149, 150, 151).

“The US Treasury and the IMF entered into the political life of Russia. By siding so firmly for so long with those at the helm when the huge inequality was created through this corrupt privatisation process, the USA, the IMF and the international community have indelibly associated themselves with policies that, at best, promoted the interests of the wealthy at the expense of the average Russian”(ibid., p. 170). Joseph Stiglitz adds that the directors of the World Bank forbade him to meet the Inspector General of the Duma when the latter made the trip to Washington to denounce the extent of the corruption. “Within the World Bank, I was urged not to meet with him, lest we give credence to his charges”(ibid. p. 170).

The odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
of Russia and other countries of the former Soviet Bloc

The case of the Russian debt, like those of other States arising from the implosion of the former Soviet Bloc, is hardly debated on the international scene, even within the progressive movements of the countries concerned; and yet, the debt contracted by Russia in the circumstances just described quite obviously fits the category of odious debt. The debt was not contracted to conduct policies in the citizens’ interests, quite the contrary. Furthermore, a large part of the loans were embezzled in full view of the creditors. The creditors - the IMF, the World Bank, members of the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

, private lenders) knew of the criminal practices of the borrowers. If the citizens of Russia were to get themselves a new regime, they would be entitled to refuse to pay the debt incurred by the transition to the market economy. They would also be entitled to refuse to pay the debt inherited from the old bureaucratic dictatorial regime. That probably goes for the other States of the former Soviet Bloc.

Russian oligarchs get good write-ups in the Western press

When the Russian legal system held the oligarchs to account in 2003, the big titles of the Western press (and the Western governments too, but more discreetly) responded by asking for clemency on their behalf - not that the media considered that the oligarchs were at all innocent. The question hinged on the future of privatisations. The media concerned thought it would be very dangerous to go back on them, even if Le Monde recognised that “According to a poll by the Romir institute, 77% of Russians are in favour of revising the privatisations” (Le Monde, 23/07/2003). Marie-Pierre Subtil, Le Monde’s Moscow correspondent, wrote several articles criticising the actions of the Russian courts (“which open the door to revision of the privatisations”, Le Monde, 27-28 July 2003) against the oligarchs, even though she did admit that they had made their money by fraud on a grand scale. Of the main oligarch under investigation, Mikhaïl Khodorkovski (born 1963), CEO of Ioukos [1], she wrote that he “is certainly no angel. His fortune - the largest in Russia, estimated at 7.2 billion dollars by the magazine Fortune - was made in the 1990s, when the most ambitious and least scrupulous of Russians bought up State assets for next to nothing at the time of privatisation” (ibid.). Yet at the same time, the same journalist gives a list of this new robber baron’s good deeds, including the creation of an international philanthropic foundation that counts Henry Kissinger among its administrators.

Another oligarch deserves mention. Roman Abramovich (born 1966). In 2003, he also fell foul of the Russian courts. He is at the head of an empire which includes, amongst others, the oil company Sibneft; the aluminium producing RusAl; and the pharmaceutical company ICN Russia. In 2003, he bought the prestigious British football club, Chelsea. The holding company that enables him to own this empire is based in the City of London. According to the Financial Times, in 2003, he was trying to sell off most of his Russian assets so that he could place the capital somewhere safe.

In an editorial of the Financial Times, we read that Russia is once again at a crossroads. It has to choose between consolidating capitalism by granting amnesty to the oligarchs who are guilty of economic crimes, which implies accepting profound inequalities, or having a revolution. The editorialist, tongue in cheek, proposes opting for the first solution.

“At the root of the problem is Russia’s flawed privatisation process. Because the division of the spoils was so chaotic - and so profoundly unjust - Russia’s rulers will always have a powerful weapon to use against its capitalists. Ultimately, there are only two ways to end this standoff: grant an official amnesty, at least for the oligarchs’ economic crimes, or take their property away. It is a choice between accepting gross inequality and imposing yet another revolution. Neither option is appealing. But having tried the latter in 1917, Russia might find it safer this time to find a way to live with its unsavoury oligarchs” (FT 21 July 2003).

The IMF, the World Bank, the US Treasury and the private creditors are all absolutely in favour of the solution proposed by the Financial Times and other international newspapers: they would also be affected by an amnesty, as they are directly involved in the economic crimes as accomplices and as beneficiaries. As for the MNCs of the Triad, especially of the United States, they are ready and waiting to acquire large chunks of Ioukos, Sibneft and the rest. Specific offers were publicised in the course of 2003. The oligarchs who own Ioukos and Sibneft responded very positively: they want cash that they can deposit outside Russia. Lastly, the US Treasury [2], the IMF and the World Bank in concertation with the directors of the WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

are preparing Russia’s membership of the institution. It is in this light that we should understand the tone and content of Anne Krueger’s address on 18 June in Saint Petersburg.


[1Ioukos, the main Russian oil company, has announced its merger with Sibneft, another Russian oil company. The entity resulting from the merger could be the world’s fourth largest oil company. Le Monde journalist, Sophie Shihab, gave the following sub-heading to her article of 6 August 2003: “The Ioukos group, one of the most influential and least opaque (sic) in Russian-style capitalism, has been officially targetted with accusations of theft, murder and tax evasion. Populist Vladimir Putin is playing to public demands for revision of the privatisations.”

[2Concerning the attitude of the US Treasury toward international trade, Joseph Stiglitz mentions a striking episode from the days when he was one of President W. Clinton’s counsellors. He denounces Paul O’Neil who has been the Secretary of State to the Treasury under the G. W. Bush presidency (P. O’Neil was replaced by J. Snow in December 2002). In 1994, while he was director of the aluminium-producing MNC, ALCOA, he set up with Russia a cartel of aluminium producers, so as to limit the fall in aluminium prices on the global market (ibid., p. 173-175).

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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