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Russia: IMF, World Bank Financing To Clear Pension Arrears

Washington, 30 April 1997 (RFE/RL) - Russia has now put together enough external financing over the next two months to allow it to pay-off all pension arrears, begin to tackle wage arrears, and make a significant start on the next round of structural reforms.

Russian First Deputy Prime Minister Anatoly Chubais says that renewal of disbursements from the International Monetary Fund's $10.1 billion long-term loan and early drawings from some new World Bank loans will put enough money in the country's coffers by the end of June to allow Moscow to "fully repay pension arrears."

Chubais told a press conference in Washington Tuesday that the country's debt is a staggering 14 trillion rubles, 3.7 trillion rubles of it owed in arrears. "We will decrease this debt by one third, not by mottos, not by catchy phrases, not by mentioning of Russia's status, but by live rubles," he said.

Catching up wage arrears is a more "difficult problem," said Chubais, but the government will be able to at least "decrease our debts to the citizens of Russia who receive their salaries from the budget."

Chubais, also Moscow's Finance Minister, was commenting after several days of talks he and Central Bank governor Sergei Dubinin held in Washington in and around the spring meetings of the IMF and the World Bank.

First and foremost, they finalized the agreement with the fund on the 1997 targets for this, the second year, of the three year extended facility loan. When approved by the fund's Board of Executive Directors in mid-May, the loan will be disbursed in quarterly tranches instead of monthly as was done last year. The drawings will be for around $700 million each, but will require regular reviews before each approval.

IMF officials say it is still undecided what to do about several monthly tranches of around $340 million each which were not released during the 1996 year because of Russia's tax collection problems. Russian officials are pushing for those to be released along with the first quarterly payment in May.

At the same time, Chubais and Dubinin initialed a formal loan agreement with the World Bank late Tuesday on a $600 million structural adjustment loan that will be taken up by the bank's Board on June 6. If approved, disbursements will begin almost immediately.

Chubais has also asked the bank for quick approval on an $800 million loan for support of the country's social safety net, so vital during the transition. However, bank officials say agreement is not yet close enough to say whether this credit could be ready for drawing by the end of June.

In all, Chubais says he expects to have drawn a total of $1 billion from World Bank loans in the first six months of this year, a significant fact because these will increasingly be focused on specific projects rather than just general budget support.

World Bank Vice President for Europe and Central Asia, Johannes Linn, says this is a normal progression as a country works through the reform stage, shifting from general structural adjustment support, to loans focused on specific development projects.

Meantime, the Bank is moving ahead on a $200 million guarantee for a Russian-Ukrainian-American commercial space launch joint venture. The Sea Launch joint venture, between one of Russia's largest aerospace companies, Energia, Ukraine's largest aerospace firm, Yuzhnoye, and American aerospace giant Boeing corporation, will set up a mobile launch platform in a remote location on the equator in the Pacific ocean.

It will use the platform to launch private commercial earth-orbiting satellites -- primarily American -- using rockets built from Russian and Ukrainian boosters and assembled in the United States.

The guarantee, the first the bank will make for Russia, will underwrite commercial loans and other private financing which should, according to Chubais, leverage several times the amount of the guarantee. The guarantee, in effect a political risk insurance policy, is scheduled for final approval by the bank's Board in May.

Chubais says the IMF loan is important mostly because of the signal it sends the global financial community -- an endorsement from the IMF that Russia can be trusted. That has important impact, says Chubais, such as lowering the cost of interest Russia must pay when it sells Eurobonds and seeks funds on other commercial markets.

But to gather all this financing, IMF and World Bank officials, as well as Chubais, say Moscow has agreed to take some large and difficult steps forward in the reform process.

The country must have a "real budget," he says, not one just patched together by sequestered spending and that will be possible as the government moves to adopt deep and meaningful tax reform measures.

Another significant step, says Chubais, is the move to "radically restructure" the major monopolies of gas, electric, railroad and housing industries in Russia, as well as fighting corruption, starting economic growth and paying the salary and pension arrears.

Russian Prime Minister Viktor Chernomyrdin will formally add his signature to the IMF agreement in Moscow today while Chubais takes a few days off.

He'll still be working, he says, because he'll be the private guest of World Bank President James Wolfensohn and, says Chubais, they have a lot to talk about.