Who is the real Elvira Nabiullina?

A few weeks ago, I edited an edition of this newsletter that introduced you to Elvira Nabiullina, the head of Russia's central bank. During her tenure as Russia's top banker, Nabiullina has managed to charm the West — or its bankers, at least — and cultivated the image of a firmly professional technocrat who likes opera and has been blindsided by the war in Ukraine.

Nabiullina also appears to have bewitched much of the press, who love the idea that every time she appears in public she could be signaling her unspoken thoughts about the economy ... via her clothing choices. As we reported in our newsletter, on her first public appearance after the invasion of Ukraine, she wore all black, a choice that was interpreted by many as a gesture of mourning (For Russia? For Ukraine? For integrity in central banking?) And, like the late Madeleine Albright, Nabiullina likes to wear brooches that telegraph her opinions about the state of the economy. In other words, Nabiullina is one of the very few Russian officials to have retained the respect, if not admiration, of the West.

But who is the real Elvira Nabiullina?

A Putin Protege

Nabiullina graduated from Moscow State University in 1986. Over the next twelve years, she worked her way up through the USSR Science and Industry Union and its successor, the Russian Union of Industrialists and Entrepreneurs, and then through the ministry for economic development and trade. She worked for a bank for a couple of years, and then it was back to the ministry in 2000 as first deputy, after Vladimir Putin became prime minister the previous year.

From then on, Nabiullina would remain close to Putin. When he became president, later in 2000, Putin appointed Nabiullina minister of economic development and trade. When he was elected president for a third term, in 2012, he brought her into the Kremlin, and made her his advisor on economic affairs. The next year, Putin made her governor of the central bank of Russia. He nominated her to a third term as governor on March 18 of this year.

Nabiullina impressed the global banking community right out of the gate. Bankers feted her for taking a strong position on the Russian banking sector between 2013 and 2017, when she withdrew more than 300 banking licenses from institutions that were either chronically weak or unscrupulously led — amounting to one-third of Russia's credit institutions. They lauded her for taking a robust position on inflation, cutting the base rate to a record low of 2.18 percent in February of 2018. And they praised her for allowing the ruble to float in 2014, rather than controlling the exchange rate, which the CBR had done in the past.

Window Dressing

The accolades flooded in. In 2015, Euromoney magazine named Nabiullina Central Bank Governor of the Year. In 2017, The Banker named her Central Banker of the Year, Europe. The following year, the International Monetary Fund invited her to give its prestigious annual Michel Camdessus lecture.

But critics have pointed out that a lot of her achievements are merely camouflage for the Putin regime. The banks she closed down between 2013 and 2017 were consolidated by other institutions, three of which — Bank Otkritie, B&N Bank & Promsvyazbank — later failed, had to be bailed out, and ended up costing the CBR two trillion rubles. Those three banks were owned by Kremlin-connected oligarchs Igor Finogenov, Mikhail Gutseriev, and the brothers Dmitry and Alexei Ananyev, respectively. Observers at the time accused the banks of mismanagement and even corruption: at the time of the bailouts, the CBR said later, Bank Otkrytie's capital was largely fictitious.

The Indicator from Planet Money recently spoke with Maximilian Hess, a fellow at the Foreign Policy Research Institute in London and a long-time Russia watcher. He says the signs that Nabiullina is a complicit member of Putin's inner circle were there for all to see from the moment she took on the role of governor of the CBR. A year into the role, she had to field an appeal from Russian oil flagship Rosneft. Russia had just invaded Crimea and the West had imposed sanctions on a raft of companies, including Rosneft. The company found itself squeezed by sanctions and falling prices on one side, and a combined $21 billion in upcoming debt payments on the other. It needed help.

Nabiullina was there. She engineered Rosneft's issue of 625 billion rubles ($10.2 billion) in local debt, which Hess says were pushed into the market without any kind of notice. She then added those notes to the CBR's Lombard credit list of securities that can be used as collateral for hard currency. Next, she made billions of dollars in loans to Rosneft, using the company's own notes as collateral.

It was a neat financial magic trick that amounted to a $15 billion bailout of the oil giant. It also hammered the ruble, which fell 20 percent against the dollar. Nabiullina tried to save the day by pumping interest rates up to 17 percent from 10.5 percent, but to no avail.

"So effectively what Nabiullina did was to bail out perhaps the most Kremlin-connected company." Hess says. "She not only destroyed Russian savings, but she made the cost of investment for them a lot higher. The Russian central bank says it has a mandate of protecting the economy and keeping price stability in check as with most central banks, but really Nabiullina only has one mandate and that is to protect the Kremlin and the Kremlin regime."

Hess says that nothing has changed since then. Nabiullina remains a key member of Putin's inner circle, despite rumors that she asked to resign in March, after the invasion of Ukraine. Other critics go further, saying she assisted in the plan for the invasion of Ukraine by building up Russia's foreign currency reserves on the one hand, while squeezing the Russian people with austerity measures on the other. Some even compare her to Albert Speer, Hitler's minister of armaments and war production, who was jailed for war crimes.

It's hard to know exactly who Elvira Nabiullina is, and what motivates her. She does, after all, work in the Kremlin, which is hardly a bastion of transparency. She started her career as a supposedly liberal technocrat, but her proximity to Vladimir Putin over the years appears to have eroded her willingness to remain politically aloof. It may be that Putin's decision to invade Ukraine was too much for her to stomach, and that she did attempt to resign, but the fact is that she is still in place, doing Putin's bidding, as she has for the last 22 years. Bankers and journalists in the West may hope that, in her heart, Nabiullina is still something of a liberal, committed to the principles of sound, non-partisan macroeconomics. It would be a mistake, however, to expect her to behave that way.

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