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Russia: IMF Strategy Failed

Washington, 11 September 1998 (RFE/RL) -- A senior U.S. Treasury official says the IMF's strategy failed to help Russia protect the value of the ruble until market reforms could take better effect and that Moscow then made the situation far worse by imposing a debt repayment moratorium and restructuring government bonds.

Undersecretary of the Treasury for International Affairs David Lipton said the role of the International Monetary Fund in assisting Russia has generally, however, been a positive one, encouraging policies and reforms to curb inflation, stabilize the economy and begin on a broad range of market reforms.

But he told a U.S. House of Representatives Banking Subcommittee Thursday that the strategy for the $22.6 billion emergency rescue package put together by the IMF in July wasn't able to stem the growing effects of the Asian financial crisis or the loss of confidence in the Russian system by investors and lenders.

Lipton was the Clinton administration's chief defender of the IMF in a hearing called by the House sub-committee, many of whose members blame the fund for the world's financial difficulties.

Ranking member Bernie Sanders of Vermont, the only independent in the U.S. Congress, is a socialist who has long been a vocal critic of the IMF. He said the IMF was entirely to blame for Russia's collapse:

He calls it a Russian tragedy of historic proportions and says the IMF has been guiding the country to tragic results with mass unemployment, grinding poverty and economic collapse, but with a few people becoming super rich, as a result.

Lipton agreed that many working-class Russians have been hurt by the current situation, but said there are no simple answers:

Historians will debate whether there was too much or too little western assistance for Russia, said Lipton, but there was no lack of willingness in the west and the IMF to support the country's efforts to begin reforms.

The IMF's second ranking official, First Deputy Managing Director Stanley Fischer, in a speech elsewhere in Washington Thursday, said there will be no more of the emergency rescue package disbursed until Russia fully resumes the reform program. At the minimum, said Fischer, it would require the restoration of a coherent macroeconomic framework, implementation of underlying structural reforms, especially in the tax system, and a realization that the "hyperinflation route on which they are embarked is a fundamental error."

Back at the congressional hearing, Treasury Undersecretary Lipton told the subcommittee that Moscow's future direction is unclear:

Russia's future lies shrouded in uncertainty, said Lipton, and it is clear there is grave risk if Russia fails to set its economy back on the reform course.

Lipton said Washington will continue to support the IMF and Russia, but that any further assistance to Moscow will depend on the choices Russian leaders make:

Russia faces a choice, said Lipton, to restart and deepen reforms, or drive in a dangerous direction. The popular pressures in Russia are for spending, subsidies and government intervention, but as President Clinton said in Moscow recently, there are no shortcuts -- there are only the rules of the global economy.

The subcommittee also heard from a number of private experts and academics. Peter Reddaway, a professor at George Washington University, said the fatal flaw in the IMF program was in believing that Russia could quickly transform to capitalism. It can't and won't, he said.

Professional investor James Rogers, head of Rogers Holdings in New York, said he thinks Russia is a great disaster in the making and he wouldn't invest a penny in the country. He urged a complete halt of all assistance from the west.

Dr. Boris Kagarlitsky, a senior research fellow at the Russian academy of Sciences Institute for comparative political studies who is an advisor to the Duma, said IMF loans have not helped the Russian people. "The one thing we need from the west now is to leave us in peace," he said. "We need it to stop imposing economic policies that are ruinous for us, while using the pretext of giving us aid."

The hearing was part of a series on the Clinton administration's request for $18 billion for the IMF -- $14.5 billion for the U.S. share of the membership quota increase approved at last year's annual meetings and $3.5 billion for the American contribution to a special fund known as the New Arrangements to Borrow. The NAB is made available by the fund's richest members as an emergency loan facility.

The U.S. Senate has approved the appropriation but the House (lower chamber) has balked and the hearing demonstrated the broad opposition among members to any more U.S. money going to the IMF.

The quota increase must be approved by 85 percent of the IMF members voting power and the U.S., with a 17 percent share, could prevent the quota rise from taking effect.