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Russia: IMF Praises Progress But Delays Loan Drawing

Washington, 3 November 1997 (RFE/RL) - International Monetary Fund (IMF) officials have strongly emphasized the progress Russia has made in implementing its broad program of economic reforms drawn up to support the current three-year, $10 billion loan. But the IMF has halted drawings on the loan. They could resume early next year.

The IMF's support for the reform program was underlined by the fund in deciding to issue a joint press statement with the Russian finance ministry when the IMF review team concluded work on its quarterly review in Moscow on Friday.

The team, headed by Jorge Marquez-Ruarte, spent more than two weeks in the Russian capital, conducting the quarterly review necessary for the release of the next tranche, or drawing, of the loan. The loan is going into its third year.

The statement noted that the "overall economic situation continues to improve" in Russia, notably in the area of inflation reduction. It said there were also initial signs of the long-awaited recovery of the general economy.

"Progress continues in transforming the economy through ongoing, significant structural reforms on a broad front," said the statement, "including natural monopoly regulation, privatization, land reform, banking supervision, and capital market development."

However, as Russian Central Bank governor Sergei Dubinin put it: "The stumbling stone is a situation with the budget revenues, namely tax collection."

The statement said that "despite increased cash tax collections, overall revenue performance of the federal budget remains insufficient" -- either to meet the current budget, maintain needed cash balances or clear up old arrears.

This is something of a vicious cycle, relates the statement, because government arrears -- from the wages of state employees to payments to contractors who supply the government -- put a heavy weight on the economy, thus further slowing tax collections.

The IMF team made a point of commending the Russian authorities' efforts to "address these difficult problems, on which energetic measures have been taken over the past six months."

Nonetheless, said the statement, despite the commendable policy response by Moscow and early indications of improving tax revenues, "it has become obviously clear that the financial burden from the past has been heavier than was envisaged" when the program was drawn up.

That means "strong measures" are needed to cut spending and increase tax collections.

The statement said that with revenues well short of targets, the IMF team could not complete the required quarterly review. However, the IMF and the finance ministry will be working together over the next two months to work out solutions to be implemented as part of the 1998 program.

It is hoped, said the IMF, that drawings from the loan will be able to resume early next year. "Both sides expressed their confidence that the prospects for both the Russian economy and financial markets are good," the statement concluded.

Russian First Deputy Prime Minister Anatoly Chubais said he hopes the next tranche of about $700 million will be ready in January or February.