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Russia: IMF Approves First Loan Package

  • Robert Lyle

Washington, 21 July 1998 (RFE/RL) -- After long hours of discussion and debate into the night Monday, the Board of Executive Directors of the International Monetary Fund (IMF) approved $11.2 billion in new loans for Russia, the center-piece of a financial rescue package that will total around $22.6 billion by the end of next year.

The fund's 23-member board debated long and hard about Russia's promises to quickly implement major reforms, according to Russian Presidential special envoy Anatoly Chubais. In the end, the board shifted $800 million from the first drawing made available immediately to the second drawing to be made available in September, to underline concerns that not all of the Russian government's anti-crisis package had been passed by the Duma.

Moscow can immediately draw $4.8 billion, according to the IMF, with the remaining $6.4 billion dollars to be available once the remaining elements of the anti-crisis program have been adopted by the parliament.

Chubais told reporters in Washington Monday night that the failure by the Duma to pass three key measures nearly brought the rescue package to a halt before it even got to the IMF's Executive Board. "In the last three days and nights it happened three times when I thought it wouldn't happen," said Chubais. Fortunately, however, he said, "we found solutions three times and by the start of the (IMF) board meeting, there were no unresolved problems."

The Duma had not acted on the government's personal income tax bill, the land tax bill, and the measure to put the pension system on more solid footing, but Chubais said the government devised ways to have all three implemented by Presidential decree.

Using decrees bothered several of the fund's Executive Directors, according to Chubais, so they decided to hold back some of the money from the first drawing to the second.

In addition, he said, there was concern about the status of minority shareholders in Russian companies, so a condition for release of that second tranche will be approval of a new law on stockholders' rights. Another condition for that drawing -- and for a World Bank loan of 1,700 million dollars, expected to be ready for the Bank's board to consider next month -- will be Duma passage of pension system reforms to fully fund the system and straighten out its administration.

Chubais says shifting the $800 million from the first to second drawing won't hurt Russia's recovery efforts because the fact of the package alone is making an enormous difference already.

For example, he said, the government on Monday was able to exchange $4.4 billion of short-term treasury bills, known as GKOs -- which were paying up to 100 percent interest -- for long term, dollar denominated bonds that are paying closer to 13 percent interest. This means the burden on the budget has decreased so much it is "as important as the entire package," Chubais told reporters.

Coupled with the fact that the IMF loans carry interest rates of 3-4 percent, Russia is now borrowing money at the most "profitable conditions," he says.

Most of the IMF money will go the Central Bank to form a stabilization fund to support the ruble, says Chubais, not to fill revenue shortfalls.

Chubais says he does not think the package will heighten social tensions in Russia, but will ease them because it will help bring order into society and "that's what we need in our economy -- order." He said there were "absolutely, unequivocally" no political conditions on the loans, denying rumors, for example, that there had been demands for the breakup of Gazprom. The only demand, he said, was for a program of activities that will insure the restoration of the viability of the Russian economy.

As the first drawing is being disbursed, Chubais acknowledges the Russian government must redouble its efforts on the reforms -- from fixing the tax and pension systems to ensuring property rights. It is only 50 days until the next tranche will be ready and the IMF board will ask to see the proof.