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Russia: IMF Mission Arrives Amid Political Uncertainty

  • Stephanie Baker



Moscow, 12 March 1997 (RFE/RL) - Officials from the International Monetary Fund (IMF) are in Moscow this week for talks with the Russian government on an economic program for 1997. But analysts said agreement on the program could be held up by the political uncertainty following President Boris Yeltsin's decree yesterday, ordering a full-scale government reshuffle.

The IMF mission arrived in Moscow Monday for talks with the chairman of Russia's Central Bank, Sergei Dubinin, and the Deputy Dinisters of Finance and Economy. The talks focus on finalizing a joint agreement between Russia's Central Bank and the government on an economic program for 1997.

However, the fate of some of the Russian negotiators was put into doubt following yesterday's Government shake-up. Yeltsin's decree leaves only Prime Minister Viktor Chernomyrdin and newly appointed First Deputy Prime Minister Anatoly Chubais secure in their posts.

Many members of the current government are expected to remain in place when a new cabinet is due to be appointed in one week. But the future of many of the government's top officials on the economy is unclear. Russian news reports have speculated that First Deputy Prime Minister Vladimir Potanin and Finance Minster Alexander Livshits might be dismissed.

The IMF is likely to be reassured by Prime Minister Viktor Chernomyrdin's statements today that the new Government will include professional market reformers. But the uncertainty about who is in charge, and who has the authority to conduct negotiations could hold up the negotiations.

As one analyst, who asked to remain anonymous, put it to RFE/RL: "What the IMF may be lacking is a commitment from the government that the people they are talking to are actually backed up by the government."

The talks on the economic program hit a snag last week when Potanin announced that he wanted to suspend the talks for three months while the government worked out its own plan for restructuring so-called natural monopolies. He later backed off, saying this week's talks with the IMF would go ahead. But his comments highlighted the sensitivity of the talks.

The IMF wants the economic program for 1997 to include a plan for restructuring natural monopolies, such as the energy giant Gazprom and the utility company United Energy Systems. In particular, the IMF wants the Government to adopt a step-by-step regulatory reform program to eliminate cross-subsidization, under which companies charge unrealistic prices.

For instance, enterprises are often charged prices for electricity that are higher than the actual costs, while ordinary consumers pay lower, essentially subsidized prices. Regulating these monopolies is politically sensitive. Proposed changes could mean that ordinary households would end up paying higher rates. Moreover, the monopolies, which have powerful lobbies in the Government, are adamantly opposed to government regulation.

Analysts said Potanin's call to postpone the IMF talks was a bid to buy time for restructuring natural monopolies on the Government's own terms. The Government last week approved such a plan, but it is unclear whether it will satisfy the IMF. As Roland Nash, an economist with the Moscow-based brokerage firm Renaissance Capital put it: "The government does not want to put itself in position where it has to follow a strict timetable for regulatory reform."

Most analysts suggest that an agreement will eventually be reached on an economic program for 1997. For one, the agreement could not be finalized before the government had an approved budget, which Yeltsin signed into law only last month.

As Pavel Teplukhin, an economist with the brokerage firm Troika Dialogue put it: "I am confident that they will reach an agreement. It is in their interest to do so."

Without an agreement, payments under a $10 billion loan to Russia would be suspended. The head of the IMF's Moscow office, Martin Gilman, told the Russian newspaper "Kommersant Daily" yesterday that he was confident that an agreement would be reached by the end of the week. But he said the loan payments would be postponed indefinitely until the program is finalized.

Another major element of the program is tax reform. Gilman said the IMF did not release the January tranche of the loan, estimated at about $340 million, because tax collection had reached only 50 percent of budgetary targets.

There is widespread consensus both in the government and the State Duma on the need to reform the tax system, but passage of a new tax code is unlikely to happen until the Summer or Autumn. Analysts say that under the current system, tax collection problems will continue to persist, as will the IMF's concerns.

Tax collection problems have been blamed for Russia's growing non-payments crisis, which has led millions of workers and pensioners to go without pay for months. With revenue falling below targets, the Russian government has become increasingly dependent on IMF loan payments.

But Russia has also turned to international markets to make up for the revenue shortfall. Banks organizing Russia's second Eurobond offering are scheduled to make a presentation to investors in Frankfurt today. The bond issue, to be denominated in German marks, is expected to fetch more than $1 billion, which the government says will be devoted to social payments. It follows Russia's successful debut Eurobond last Autumn, which was the country's first since the Bolshevik revolution.
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