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Russia: Implementation Botched A Good Reform Plan, IMF Says

  • Robert Lyle

Washington, 2 October 1998 (RFE/RL) -- International Monetary Fund (IMF) Managing Director Michel Camdessus minces no words when he talks about what went wrong in Russia and whose fault it was.

The economic reform plan and strategy Russia worked out with the IMF were fine, Camdessus told reporters in Washington Thursday. It was Russia's implementation that was poor.

Implementation of such fundamental reforms requires broad political support, he said, not only from everyone in the government itself, but from the Duma and even from the regional governments. Indeed, said Camdessus, the more difficult the reforms, the more indispensable is this broad political support.

Camdessus said it also requires a certain administrative strength to carry out reforms and Russia was particularly weak in this area. It couldn't collect taxes, it couldn't control expenditures, it couldn't supervise banks. Even when the strategy is good, it will fail if the means of implementation are insufficient.

Added to those fundamental weaknesses, said Camdessus, was the fact that instead of correcting its economic problems, Russia turned to heavy borrowing to pay for government operations. That's one lesson the new government must learn. Said Camdessus: "borrowing to avoid fundamental budgetary adjustment and reform is a recipe for disaster."

Camdessus ticked off his list of Russia's faults when he was asked about the comments of former Russian tax chief Boris Fyodorov Wednesday. Fyodorov complained to a group of western correspondents that "the IMF was pretending that it was seeing a lot of reforms in Russia (and) Russia was pretending to conduct reforms."

Camdessus laughed when told of Fyodorov's comment. "Well," he said, "there are many things to say about Russia, about the past."

The IMF managing director said that for the future, the new government in Russia must have a "clear strategy, clear vision" of what is needed and how it will be implemented. Then it must show it to the public and win popular support for it.

That has not happened yet, said Camdessus, and even though there are "suspicions" about what the new government's real plans are, no policy statements have yet been issued.

What the IMF and the rest of the global financial community is waiting for, said Camdessus, is a statement that Moscow will take every possible step to reestablish a good working economic and financial climate in the country, will patch up the damage it has done with its creditors, especially demonstrating that it will not be tempted again to take unilateral actions.

That was a reference to the previous Russian government's imposition of a 90-day moratorium on debt repayments and a forced rescheduling of those debts, a move that was strongly criticized.

Camdessus said Russia's new government must also recognize that it has been incapable of collecting revenues to pay for the core responsibilities of the state -- defense and the payment of wages and salaries of government employees -- and do something about it.

They must also have a credible proposal for restructuring the banking system, which has effectively collapsed, and endorse continued broad structural reforms, said Camdessus.

While Moscow's official economic recovery plan has not been announced, Camdessus acknowledged that some public statements have indicated Moscow may be considering a number of actions, such as printing more rubles to pay off bills, that could make Russia's financial situation only worse.

The new leaders must demonstrate that they are convinced that inflation is in no way conducive to growth and that going to the printing press to turn out unsupported rubles, can never be a solution to the problems of any country, he said.

Camdessus expects to meet with several new Russian ministers over the next few days in the continued lead-up to next week's annual meetings of the fund and the World Bank. Sources in Washington say that Moscow's new ministers of Economy, Finance and Energy are, at the moment, penciled in to attend the IMF/World Bank meetings.

Camdessus' assessment was echoed by U.S. Treasury Secretary Robert Rubin. Speaking to a New York economic conference, Rubin said the IMF-led reform package was a good one, but that it fell apart because of what Russian officials did -- or didn't do.