Putin’s Unlikely Ally in His Standoff With the West: His Central Banker

Elvira Nabiullina has earned an unusual degree of freedom to buttress an economy buffeted by sanctions

After Russia’s central-bank chief, Elvira Nabiullina, moved to shut down a large lender last year for allegedly falsifying accounts, the nation’s top prosecutor’s office issued an order to leave the bank alone.

She closed it anyway.

In her five years in office, Ms. Nabiullina has closed hundreds of weak banks, stymied the exodus of Russian wealth abroad and transformed monetary policy to bring inflation to record lows. That has earned her an unusual amount of freedom to make tough decisions, even if that means treading on powerful interests.

.. As President Vladimir Putin bids to return Russia to great-power status, challenging the U.S. and Europe from Syria to Ukraine, it’s her job to shore up the economy against volatile oil markets and sanctions. Russia’s ability to continue its quest rests in large part on whether Ms. Nabiullina can keep the financial system stable.

Ms. Nabiullina has earned public praise from

  • Mr. Putin, who rarely commends subordinates, as well as from abroad. Last year at the Kremlin, Mr. Putin told her that “under your leadership, the central bank has done a great deal to stabilize the economic situation.” Managers at big investment funds, from
  • Pacific Investment Management Co. to Pictet Asset Management, call Ms. Nabiullina one of the world’s most skilled central bankers.
  • Christine Lagarde, managing director of the International Monetary Fund, lauded her in May for setting “standards of quality for macroeconomic policy.”

.. In 2006, the central-bank official responsible for revamping the system, Andrey Kozlov, was shot dead in his car. Russian financier Alexey Frankel, whose banking license Mr. Kozlov had revoked earlier that year, was later convicted of organizing the killing.

.. She has earned a reputation for bookishness, personal honesty and fixation on detail

.. Industry veterans said that before Ms. Nabiullina took over, banking licenses were mostly used as mechanisms to funnel money abroad and process insider deals.

.. “We used to open a newspaper in the morning and look at the banking deals and said—that’s capital flight, and that’s asset stripping,” said Sergey Khotimskiy, co-founder of one of Russia’s largest private banks, Sovcombank. “The dodgy enrichment schemes were obvious to everyone.”
.. When she took over the institution, banks and companies were moving $5 billion out of the country every month, and inflation topped 7%.She shut down 70 banks in her first year.

.. Ms. Nabiullina stopped a longstanding policy of spending billions of dollars from the country’s reserves to try to prop up the ruble. In December 2014, with the ruble continuing to fall, the central bank nearly doubled its key lending rate to 17% at an emergency late-night meeting.

.. The rate increase restored calm to markets but strangled the country’s consumer-fueled growth. The country’s emerging middle class, which had become used to foreign vacations and European cars, is still feeling the effects of the ruble’s collapse.
..  Since she took office, she has halved the number of Russian banks, shutting down about 440 lenders. She has reduced capital outflows by about 50% to $2.5 billion a month.
.. Many of the banks she closed had been considered untouchable, analysts said. Some, such as Promsviazbank, counted lawmakers and state-company executives among its shareholders and held money for national oil companies and the Orthodox Church.
.. Others, like Bank Sovetskiy, had served political objectives, providing banking services in Crimea, the Ukrainian region the Kremlin annexed in 2014.

.. When the central bank took over Yugra last June following repeated warnings, it said it found a $600 million deficit in its balance sheet masked with bad loans. Just hours before the bankrupt bank’s license was due to expire, the prosecutor’s office ordered a halt to the closure, calling the bank “a financially stable credit organization.” Ms. Nabiullina rejected the order.

.. “It was a test of will, and she won,” said banking analyst Mr. Lukashuk.
.. In January, inflation hit a record low for the post-Soviet period of 2.2%, a result of Ms. Nabiullina’s decision to keep interest rates high after the Crimea sanctions. Some tycoons have urged a faster reduction.
.. Still, she has struggled to regulate Russia’s lesser, underperforming state-owned banks, whose executives often treat them as fiefs, analysts said. These banks are kept afloat by constant injections of state funds, which the executives have funneled into unrelated assets ranging from supermarkets to railroad cars.
.. Almost a trillion rubles of public capital, about $16 billion at today’s rate, went to just three state-owned banks—
  1. VTB,
  2. Gazprombank and
  3. Rosselkhozbank—

in the first four years of Ms. Nabiullina’s central-bank term, according to Fitch Ratings. All are still saddled with bad debts or illiquid assets.

.. Her modest economic forecasts have consistently lagged behind Mr. Putin’s goals, which she said can only be achieved through deep, unpopular changes to the system.

Even if the price of oil rose to $100, from around $65 today, she said, “it’s very unlikely that our economy can grow above 1.5% to 2%” a year.

The World Bank Is Remaking Itself as a Creature of Wall Street

Jim Yong Kim, the World Bank’s president, is
trying to revitalize a hidebound institution.
But his embrace of Wall Street is controversial.

.. provides cash to companies in exchange for equity stakes, the World Bank currently drums up more than $7 billion a year from the private sector to invest in ventures in the developing world. Mr. Kim wants that figure to increase eventually to $30 billion.
.. The World Bank promised to protect investors against some losses.
.. those benefiting from the World Bank’s lending practices were “the people who fly in on a first-class ticket to give advice to governments.”
.. The argument was that growing investment flows into developing countries rendered World Bank lending mostly superfluous.

.. Last year, the World Bank dispensed $61 billion in loans and investments. By contrast, investors now inject more than $1 trillion a year into emerging markets

.. In effect, he was pitching the bank’s services as a middleman, ready to back projects with guarantees and other incentives. No longer could the World Bank be the sole provider of loans, which, he said, are “crowding out” the private sector.

.. the World Bank economists whose pay is tied to how many loans they churn out

.. “One of the most difficult things to do in a large bureaucracy is to change incentives,

.. “And if you have a large bureaucracy full of economists it is especially hard, because it turns out that economists really hate it when you change the incentives.”

.. On Wednesday, the bank’s top economist, Paul Romer, abruptly resigned.

.. His end came after he claimed, in an interview with The Wall Street Journal, that the World Bank’s closely-watched report on business conditions in different countries had been altered for political reasons.

.. the bank tends to see private sector solutions — those involving the profit motive — as morally questionable.

.. World Bank staffers are used to talking to governments, and now they have to leverage the private sector? It is a different skill set, and flexibility is not the hallmark of development institutions.”

.. “He had to work against his own incentives,” Mr. Kim said, referring to the bank’s practice of rewarding staff for loans. “And that is part of the institutional problem here.”

.. “He has pursued a strategy of making himself popular in Davos by attacking the organization and its staff,” said Lant Pritchett, a retired World Bank executive. “It is this idea that his hand has been hampered by bureaucratic machinations. That may be accepted in Davos — but it’s completely false.”

.. His biggest coup was working with Ivanka Trump

.. They eventually settled in Muscatine, Iowa, where Mr. Kim was a high school quarterback before going on to Brown and securing advanced medical and anthropology degrees from Harvard.

The Global Effort to Flatter Ivanka

the achingly obvious oddity of deciding that Trump, whose experience on the public stage largely consists of marketing her clothing and jewelry lines, and her efforts to get her father, Donald Trump, elected, was qualified to sit between Christine Lagarde, the head of the International Monetary Fund, and Chrystia Freeland, the Foreign Minister of Canada.

.. maybe the make-believe about Ivanka coming up with world-changing ideas is harmless, if it means that her father will look kindly on the World Bank—although a report, this week, in the Washington Post about the conditions in a Chinese factory run by the contractor who makes her brand’s clothes (extremely low wages and long hours) does not quite fit into the picture.

.. He’s been a tremendous champion of supporting families and enabling them to thrive in the new reality of a duelling—”

When asked, more specifically, how she advised him, she said, “It’s been an ongoing discussion I’ve had with my father most of my adult life, and we’re very aligned in many, many areas. And that’s why he’s encouraged me to fully lean into this opportunity and come into the White House and be by his side.” The implication was that nepotism was one of her father’s virtues, and proof of his good character.

.. when NBC News asked her about admitting Syrian refugees to the United States, she said that it should be “part of the discussion, but that’s not going to be enough in and of itself.” The resulting headlines suggested that this constituted a break with her father. But how, exactly? Refugees are “part of the discussion” when he rails against them; and “not going to be enough” could just as easily refer to what the President sees as the need for “extreme vetting,” or letting in only Christians. She referred, for a second time, to the areas “in which I’m fully aligned with my father—which are many.” “Many” could mean anything,

.. Foreign countries and companies might appreciate the idea that they can more easily handle Donald Trump if they lavish his daughter with attention; this is a common enough practice when dealing with authoritarian governments.