The Economist Asia - 24.02.2018

64 Finance and economics The EconomistFebruary 24th 2018

I

LMARS RIMSEVICS, for 17 years the go-

vernor of Latvia’s central bank, had been

due to retire next year. Instead, he is facing

calls to resign. On February 17th Latvia’s

anti-corruption authority detained him on

suspicion of demanding bribes of at least

€100,000 ($123,000). That sparked interna-

tional concern. Mr Rimsevics is a member

of the governing council of the European

Central Bank (ECB) and privy to the most

sensitive monetary-policydecisions.

The prime minister, Maris Kucinskis,

says the allegations are so serious that Mr

Rimsevicsmust stand down. But he is stay-

ing put. Released on bail on February 19th,

the central bank chief says the allegations

are a set-up to punish him for cracking

down on lax practices. He also says he has

received death threats. 

Latvia’s outsized and ill-regulated off-

shore banking industryhas been a head-

ache since the country regained indepen-

dence in 1991. During the global financial

crisis ten yearsago, Parex Bank, the largest

independent bank in the region, collapsed,

prompting a budget-busting bailout—and

the rescue of the Latvian economy by the

IMF and the European Union. Mr Rimsev-

ics played a leading role in resisting calls to

abandon the peg which tied the lats, then

the national currency, to the euro. That pre-

served Latvia’s credibility, but at a huge

cost. The economy contracted by 25%; un-

employment soared above 20% and a

tenth of the population emigrated.

Latvian officials have repeatedly ar-

gued thatthe industryhas cleaned up its

act. But the facts tell another story. Several

Riga-based banks were alleged to have

moved money stolen in a tax fraud perpe-

trated by Russian officials on Hermitage

Capital Management, an investment fund

that specialises in Russia, in 2008. The evi-

dence came from Sergei Magnitsky, a law-

yer, who was later imprisoned in Russia

and died in custody. Leaks in 2014 exposing

the “Russian Laundromat”, whereby

$20.8bn was moved illicitly from Russia,

suggest thatdirty money flowed through

Moldova and Latvia to 732 banks in 96

countries. Many foreign institutions have

refused to conduct transactions with Latvi-

an banks since.

Most recently, America’s Treasury said

last week thatABLV, one of Latvia’s largest

banks, had “institutionalised money-laun-

dering”, notably in sanctions-busting tran-

sactions with North Korea. Customers fled,

withdrawing €600m. After a six-day hia-

tus, the ECBfroze the Latvian bank’s pay-

ments on February 19th. Customers’ debit

cards stopped working.

Bank regulation is not Mr Rimsevics’s

direct responsibility, though he is responsi-

ble for nominating the officials supposedly

in charge. The penalties levied have been

strikingly mild. An audit of the banking

system prompted bythe Russian Laundro-

mat case led to just €640,000 in fines be-

ing levied on three banks. For comparison,

last July a court in Paris fined Rietumu, an-

other large Latvian bank, €80m for mon-

ey-laundering. 

Some regard the allegations against Mr

Rimsevics assuspicious. On February 20th

the Latvian defence ministry called them a

smear operation “from outside” (ie, Rus-

sia), aimed at portraying Latvia as a badly

run, untrustworthy ally. Sceptics noted

that the bribes he allegedly demanded are

modest compared with the graft that has

made billionaires of some crooked Rus-

sian businessmen.

The ABLV case also highlights weak-

nesses in European banking regulation.

Though the bank is underECB supervision,

it is national governments that enforce

anti-money-laundering rules in the EU.

One of them is Latvia’s. 7

Corruption in Latvia

Laundry list

Claims of financial crimes stain Latvia’s

banking system

Religion and poverty

Both God and Mammon

C

AN religion make people wealthier?

In 1905 Max Weber, a German sociol-

ogist, argued thatit had happened in

Europe. Protestants did not invent capi-

talism in the 16th century, he suggested.

But, by discarding monastic asceticism

and embracing the notion that diligence

and self-improvement are pleasing to

God, they became particularly good at it.

Weber’s idea isunfashionable these

days, partly because so many non-Prot-

estant countries have become rich and

partly because of a cause-and-effect

problem. Were Protestants truly better at

business, or were ambitious, business-

minded people drawn to Protestantism?

One way of settling that question is

through a randomised controlled trial of

religion. A National Bureau of Economic

Research working paper released on

February 19th reports on an experiment

in the Philippines that suggests Weber

was onto something.

International Care Ministries (ICM),

an evangelical charity, tries to help the

Philippines’ poorest people through a

series of weekly 90-minute lessons on

business, health and religion. In the fifth

week, for example, instructors teach

about saving money, respiratory diseases

and the sin of living outside God’s rule.

Because the course is composed of mod-

ules, it can be chopped down. Working

with three economists, Gharad Bryan,

James Choi and Dean Karlan, ICMtried

delivering differentbits ofthe course in

different villages. Some got the whole

package, others gotjust business and

health advice, and still others heard only

preaching. A control group got nothing.

Six monthslaterInnovations for

Poverty Action, an independent research

outfit, checked up on them. Not surpris-

ingly, those who were preached at had

become more religious (though Catho-

lics, who accounted for seven out of ten

recipients, mostly stayed formally Catho-

lic). They were not more satisfied with

their lives, and had become a little

gloomier about their economic status. Yet

their incomes had increased by 9.2%

compared with the others. Because the

sample is so large—more than 6,000

households—that is significant.

Mr Karlan of Northwestern Universi-

ty suggests the Bible lessons might have

pushed people to think about their fu-

tures, and encouraged them to take more

control over their lives. (They earned

more largely because they took on cash

jobs.) He is not sure, and is doing a fol-

low-up study to see, if the income effect

endures. For now, anyone recalling

nudges from grandma urging wakeful-

ness through tedious sermons should

consider that she may have been right.

Protestantism mightbe good for the wallet, after all

Spirit and flesh