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Will New IMF Loan Endanger Russian Reform?

  • Jeremy Bransten

Prague, Feb. 27 (rfe/rl) - Last week, the International Monetary Fund (IMF) pledged a new three-year, 10.2 billion-dollar loan for Russia. The credit is a major boost for President Boris Yeltsin less than four months before the presidential election. Pending approval by the IMF's board of directors, money should start flowing into Russia by April.

Russia's Communist Party leader Gennady Zyuganov, who is challenging Yeltsin for the presidency, says the IMF loan is a blatantly political move designed to prop up the ailing Yeltsin administration. Undoubtedly, Yeltsin's possible replacement by a Communist leader bent on rolling back reforms, sends a shiver down many a Western leader's spine. Some, such as Germany's Chancellor Helmut Kohl and France's Prime Minister Alain Juppe have all but openly backed Yeltsin's re-election bid. But many observers are asking whether throwing money at Boris Yeltsin will not do more harm than good for the cause of Russian reform. The end result, some warn, could be counter-productive.

During his meeting last week with IMF managing director Michel Camdessus, Yeltsin pledged to maintain strict budgetary discipline. He expressed his support for the government of Prime Minister Viktor Chernomyrdin and the Central Bank, which has curbed inflation to around three percent a month - the lowest level since economic reforms began. But Yeltsin's pledges come after a month during which the Russian president raised pension benefits and student stipends, ordered an extra 10.4 trillion rubles (2.2 billion dollars) in subsidies for the mining industry and promised to pay all back wages - totaling some four billion dollars countrywide by the end of March. All of this comes on top of millions of dollars promised for the victims of the botched raid on the Dagestan village of Pervomayskoye in January. A Moscow-based investment office, the AIOC, has estimated that since the start of the year, Yeltsin's additonal spending proposals add up to 250 dollars per voter. This is in a country where the average monthly wage is around 100 dollars.

So when Michel Camdessus assured Russian journalists that Russia's budget will stretch far enough to pay for President Yeltsin's campaign promises - there were more than a few arched eyebrows. Tom Sigel, an economic analyst at the Prague-based, Open Media Research Institute calls the statement "outrageous." The day after Yeltsin received news of the loan, he told lawmakers in his annual parliamentary address that the government of Prime Minister Viktor Chernomyrdin had "basically wrecked" social policy. Yeltsin thundered, "The government will either carry out its duty to defend the social and economic rights of the people or another government will do it." Communist Party leader Gennady Zyuganov later complained that at least one third of Yeltsin's speech had been copied sttaight from his (zyuganov's) program. As for the war in Chechnya, whose human toll has increasingly cost Yeltsin much of his remaining popularity, the Russian president spared only three minutes at the end of his speech, offering no new ideas on how to end the conflict. What was revealed in February by the government is that the Chechen war has cost the equivalent of four billion dollars so far - a continuing financial drain Moscow can ill afford.

The IMF did make an effort at promoting reform in Russia's huge energy sector - by making its loan conditional on Moscow lifting export duties on oil and gas by July. and in order to increase revenues, the IMF wants Russia to start imposing excise taxes on all petroleum products. This will raise the price of oil and oil products, bringing them closer to world prices. But the immediate effect could prove quite a shock for the Russian domestic market- as the price for everything from gasoline to plastics rises dramatically. All this just ahead of the crucial harvest season. The Energy Ministry has also warned that high excise taxes, imposed to make up for lost revenue from export taxes, could hurt Russian oil's competitiveness abroad.

At heart, the new IMF loan, which comes on the heels of another six billion dollar loan, symbolizes the West's urgent attempt to ensure Yeltsin's victory in June - at nearly any cost. But that is precisely the problem. Yeltsin is not the same politician he was when he launched reforms back in 1992 - all the more so now that he is in the midst of a political campaign. But by focusing on the man rather than his recent policies, some observers say the West risks throwing good money after bad, and undoing reforms attained at such high social cost. And that is precisely the opposite of what IMF loans are designed do.