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Russia: World Bank Approves New $400 Million Loan

  • Robert Lyle

Washington 23 December (RFE/RL) -- In what might appear to be swimming against the tide, the World Bank approved a new loan for Russia on Tuesday.

One day after the International Monetary Fund (IMF) cautioned that Russia's current budget plans fail to meet the urgently needed reforms for reestablishing macroeconomic stability -- and therefore its emergency rescue loan remains frozen, the fund's sister institution -- the World Bank -- approved a new $400 million loan. It said it might even okay another modest credit before too long.

What is going on, according to Vice President for Europe and Central Asia, Johannes Linn, is that the bank is attempting to find ways to continue to help Russia even though it remains in financial crisis and does not yet have a comprehensive recovery strategy.

Even with the financial crisis, says Linn, there is a serious need for rehabilitating and maintaining the most heavily used highways and bridges on the federal road system.

Linn told reporters following bank board approval of the loan that bank officials had "carefully reviewed" the entire program and have "very good reasons to assume that this project will be successful" in meeting the demand for increasing highway transport despite the overall depressed situation.

In addition, he said, the bank has good experience with the Russian Federal Highway Administration as a responsible agency which will not allow the money to be drained off for other purposes.

The bank's country director for Russia, Michael Carter, said the crisis has already taken a heavy toll on the bank's current lending projects in Russia -- the number of those achieving a satisfactory implementation rating dropped from around 80 percent in July to only 54 percent in November.

Many projects have been brought to a halt due to the financial crisis, which has frozen funds in some banks and prevented local Russian partners from paying their share of the projects.

In a review of it's overall strategy toward Russia, the bank's board of Executive Directors approved an "interim plan" for working with Russia in the midst of crisis which has left its future very uncertain. What is most clear, says the new strategy, is that the social impact of the crisis will be "profound" and the country will find many more of its citizens in poverty.

Unfortunately, said the bank's board, the new Russian government still has not outlined a focused and specific program of economic recovery and the plan it has adopted -- more a broad overview of proposed economic direction rather than a specific set of proposed policy measures -- suggests a return to more activists industrial and trade policies, and a reversion to the use of offsets as a government finance mechanism.

Still, because the bank wants to stay involved with Russia, it has begun a series of discussions with Moscow officials on a whole host of issues, most urgently on ways in which poverty benefits can be better targeted at those who really need them and efforts to develop pilot projects to generate employment and support socially important investments at the local level, possibly through new socials funds.

While the bank approved the new highway repair loan, Linn and Carter said the $1,850 million in undisbursed drawings from three structural adjustment loans the bank approved for Russia only last summer, remain frozen until Moscow works out a broad economic reform plan with the IMF.

In the meantime, Linn and Carter say those three loans will be reviewed to see if they still meet Russia's needs. The board noted in the new interim strategy, for example, that about $200 million from ten longer-term projects is being cancelled because of changed circumstances.

Carter says the bank is remaining very open to working closely with Russian authorities, hoping that they will be able to put together a comprehensive recovery plan that would not only lead to resumed economic growth, but which would allow the international institutions -- the IMF and the World Bank -- to resume the structural adjustment lending that is, for now, blocked.

In it's revised country strategy, signed by World Bank President James Wolfensohn, the bank says that the events of the last six months in Russia "have to be viewed with profound concern" and that the country's situation over the coming "two to three years and perhaps beyond will be fraught with risk, and the years beyond will be difficult."

But the bank says it intends to remain engaged with Russia and will maintain readiness to resume adjustment lending whenever Russia's leaders are ready and become "fully committed" to the reforms.