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World: Eastern Europe Apprehensive About New IMF Head

  • Ron Synovitz

The news that Michel Camdessus would soon step down as head of the International Monetary Fund (IMF) has caught the attention of governments and financial analysts around the world. RFE/RL correspondent Ron Synovitz looks at possible consequences for Russia and other states in Central and Eastern Europe.

Prague, 11 November 1999 (RFE/RL) -- Financial analysts who specialize in Eastern European markets are looking for signs about the impact on the region from the resignation of International Monetary Fund Managing Director Michel Camdessus.

During much of his nearly 13 years heading the IMF, Camdessus has provided both advice and funding to help central and eastern European states make the transition to market economics. Membership in the IMF grew during his tenure to include most of the former Soviet bloc countries and former Soviet republics.

Camdessus announced on Tuesday that he was leaving for personal reasons. He said he hopes to leave office by February of next year after his replacement has been chosen. He denied that his resignation was connected to his health, to politics or to allegations that IMF loans disbursed to Russia had been illegally sent abroad in a money laundering scandal. So far, evidence has not surfaced linking any IMF funds to alleged money laundering.

Mike Marrese, an East European specialist at the London offices of Chase Manhattan Bank, tells RFE/RL that there have been no clear signals so far from the United States, Germany or any other country that would indicate new policy directions for the IMF.

Marrese and other analysts contacted by RFE/RL say they must wait to see who will replace Camdessus before they can judge the impact of his resignation.

Juergen Conrad, Eastern European coordinator for the Deutsche Bank Economic Research unit, agrees. He spoke with RFE/RL by telephone from Frankfurt:

"It's still so open [as to] who will succeed him that it may be a bit too early to assess the consequences for lending policy in respect of Eastern Europe."

In Moscow, there have been conflicting signals on how Camdessus' resignation might affect future IMF loan disbursements to Russia. President Boris Yeltsin's representative to international financial institutions, Aleksander Livshits, says he expects a decision on the next IMF disbursement to be made as early as this year -- before the resignation date announced by Camdessus. Livshits told Echo Moskvy Radio that the head of the IMF is not as important to Moscow as the implementation of programs in Russia that are endorsed by the IMF.

But Mikhail Zadornov, a former Russian envoy to the IMF, says officials in Moscow are privately upset about the forthcoming resignation. Zadornov told Itar-Tass the development is "unquestionably bad news" for Russia. Zadornov also said he does not think Camdessus' resignation is linked to relations between Russia and the IMF.

But Deutsche Bank analyst Juergen Conrad notes that the Russian financial crisis and allegations of money laundering have certainly not made Camdessus' job any easier.

"Russia in particular was definitely no success story for the IMF in general and Camdessus in particular. I think it's clear that it's risky to give huge credits to countries like Russia without having transparency and without knowing very well that the credits [will] help the country to accelerate economic growth...Whoever will be the successor of Camdessus will be well aware of all these facts."

Still, Conrad says he thinks there is a good chance that a $640 million loan disbursement to Russia will be approved by the IMF soon.

"The only thing we have are positive signals. The disbursement seems to be possible. This week a technical mission of the IMF arrived in Moscow to check figures. In the end, the probability that the tranche will be disbursed this year has increased. The IMF is clearly interested in giving Russia money for one simple reason: Russia has to pay interest in principle on IMF loans. In the long run, Russia won't continue to pay if the IMF is not willing to disburse new credits."

Conrad also says that continued fighting in Chechnya by Russian forces could have an impact on future IMF loans to Russia. He says a long, drawn-out conflict in the breakaway republic would increase political pressure on the IMF to refuse further loans. With Russian military spending now accounting for 20 percent of the country's annual budget, he says the fiscal implications of an on-going Chechen conflict also could effect future IMF disbursements.

Another issue that western financial analysts are watching closely is that of debt servicing by countries like Ukraine and Romania -- particularly, whether the next IMF chief will endorse the idea of bond holders being included in the process. Deutsche Bank's Conrad says:

"The debt service problem for Ukraine is much more dramatic now than for Romania. Romania had a peak of repayment earlier this summer and Ukraine will have a peak in February/March of next year. So the issue of Ukraine is much more acute now. Anyway, Ukraine, Romania, Pakistan, Equador are countries with debt service problems now that are not restricted to bilateral creditors or western banks, but also cover bond holders." Conrad says that the IMF under Camdessus had intended to include bond holders in debt restructuring talks and agreements whenever it made sense. He says it remains to be seen whether that will also be the case under the IMF's new leadership.

The one thing that all observers agree on is that the decision on Camdessus's replacement is eagerly awaited by financial analysts and government officials across the globe.