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Russia: World Bank Officials Doubt Assurances Of Reform

Washington, 8 October 1998 (RFE/RL) -- The World Bank's vice president for Eastern Europe and Central Asia, Johannes Linn, says he has found Russia's delegation at the annual meetings of the bank and the International Monetary Fund (IMF) to be very serious in its focus on pushing ahead with market reforms.

They have not "fallen off the wagon" of reform, he commented in one conversation with journalists.

But other bank and fund officials have come away from meetings with the group wondering if they really understand how much has changed in Russia's situation in the past few months. One official said, "They don't seem to have an inkling how dramatically different their circumstances are now." Another commented that there seems to be little understanding of how serious the situation is.

Linn acknowledges that he tends to be optimistic, especially based on his conversations with the Russian delegation in Washington. Led by Finance Minister Mikhail Zadornov and Central Bank Chairman Viktor Gerashchenko, the delegation is heavyweight, filled with the heads of major departments of the finance, foreign affairs and other key ministries and the central bank, as well as a senior Duma leader.

The World Bank's country director for Russia, Michael Carter, acknowledges that in detailed discussions on current World Bank loans, the delegation seems unduly optimistic about what Moscow can achieve in the immediate future.

Drawings on three loans totaling $1.2 billion that were part of the international rescue package in July were originally tentatively scheduled to be ready by the end of this year. But Carter says he is "rather doubtful" of Russian delegation assurances that the original goal is still feasible.

The drawings, or tranches, of the loans are tied to the achievement of specific goals. Both Linn and Carter say that overall, the progress on these reforms has slowed markedly since the Russian crisis began.

In addition, all World Bank loans require that the country be in compliance with its IMF program -- or, in unusual circumstances, have IMF assurances that the country's macroeconomic (overall) picture is sound enough.

Of course, Linn says, it is still not clear where the Russian government is going because it has not yet spelled out a plan for economic recovery. If it were to implement some of the measures heard in public comments in Moscow, such as direct budget support for inefficient industries, price controls, or forced inflation, then the bank would have to reexamine everything, he says.

But, he says, so far there is no indication that these policies are going to be pursued.

There is a similar uncertainty among IMF officials dealing with the Russian delegation. Only Managing Director Michel Camdessus has commented publicly, saying Moscow knows what it has to do to resume the fund's emergency loan, and the sooner it begins, the better.

Other officials say they're not sure the new government fully understands what it would take to get the reform program back on track. One says there is some doubt at the IMF that President Boris Yeltsin has the necessary political support to carry through with such a program. And everyone acknowledges that a lack of broad political support -- around the country and in the Duma -- is a key factor.

No matter the political situation, however, IMF and World Bank people have reiterated that both institutions stand ready to talk about reopening loan programs if and when the new Russian government decides on a prudent and sound economic recovery plan.

In the meantime, the fund and bank are working jointly with the government on a program to revive the country's banks -- very few can be saved, say bank officials -- and to restart the national payments system. Linn says they are awaiting word from Moscow on whether the government wants to follow that plan.

Additionally, the bank is sending a special mission to Moscow next week to help the government focus the next round of budget cuts so that they cause the least social pain.

World Bank President James Wolfensohn opened this week's annual meetings with a call to include dealing with the pain of the people alongside the fiscal needs of the economy when helping countries in distress.

But until Moscow spells out what it plans to do, acknowledge IMF and World Bank officials, there is little more the institutions can do.