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Russia: Bank Chairman Does Not Expect Miracles

Washington, 2 December 1998 (RFE/RL) -- Russian Central Bank Chairman Viktor Gerashchenko's comment Tuesday evening that he didn't expect "any miracles" from the visit to Moscow by International Monetary Fund (IMF) Managing Director Michel Camdessus is precisely what fund officials are hoping Russian leaders understand about the situation.

Camdessus met with Prime Minister Yevgeny Primakov last evening shortly after his arrival in Moscow and is meeting with him again around noon today Moscow time.

In between, the IMF chief is meeting with Finance Minister Mikhail Zadornov and First Deputy Prime Minister Yuri Maslyukov.

News reports from Moscow have been filled with various Russian officials predicting -- or at least hoping for -- the "miracle" of an immediate release of the next drawing or two from the fund's $11.5 billion emergency loan program launched in July, but frozen after the August debacle.

Looking to plug large holes in the government's proposed 1999 budget, the officials, including Primakov, have said publicly that without additional IMF money and soon, they might have to resort to the printing presses to supply the rubles needed to pay wage and other arrears.

They have acknowledged, as well, that printing rubles will only reignite inflation.

Still, IMF officials publicly and privately have been warning that there will be no additional money from the global financial organizations until Russia puts together a credible recovery plan.

It was not by accident that the IMF put an article written by its top official dealing with Russia onto its Internet web page just hours before Camdessus flew into Moscow.

Odling-Smee, director of the IMF department that deals with Russia, has been at the center of all the fund's talks with Moscow,

He writes that the massive amounts of international financial support given to Russia before August "regrettably" reinforced the feeling in Moscow that the economy could be successful without the need for deeper structural reforms.

The loans from the IMF, the World Bank, the EBRD (European Bank for Reconstruction and Development) and others certainly helped start basic reforms, said Odling-Smee, but that was not enough. It also permitted the postponement of some of the trough measures necessary to plug fiscal gaps, he said.

At the same time, private investors in both the Russian equity and bond markets poured millions of dollars into Russia -- each not wanting to be too late getting into a potentially vast market.

Unfortunately, says Odling-Smee, this not only reinforced the feeling that the reforms weren't all that necessary, but led "some Russian politicians even (to think) that the reform effort spearheaded by the IMF could be abandoned altogether, since sufficient finance from private sources was readily available with no strings attached."

But there were strings attached that the Russian officials did not understand. Private investors and lenders, suddenly made wary by the collapse of a number of the Asian "tiger economies," began to lose confidence in the Russian situation and the Russian leaders who thought they were on an easy street.

Suddenly, instead of reinvesting their money into Russia, the investors began to withdraw it in such volumes that Moscow had no easy alternative. So in August, Russia abruptly and unilaterally devalued the ruble, declared a moratorium on much of the debt and forced rescheduling of other parts. The result was an instant end to all private financing.

Odling-Smee says Russia was making "serious progress" in economic stabilization until August, but that the government's problems in funding its own operations was a "symptom of a deeper malaise" -- insufficient agreement among the country's leadership on the fiscal discipline needed to pursue successful reforms and the will to adopt the solutions.

One positive impact of the international support, says Odling-Smee, was that it did help in creating a "political class with a stake in the continuation of the reform process." He says that is what allows for "some confidence" that a serious determination to press ahead with transition will return to Russia.

But for the future, Odling-Smee says, any programs and loan money will have to be based on "actual measures" already taken, not just promises. But far more importantly, he says, Russian leaders must demonstrate what he calls "genuine ownership of the next reform program and be prepared to undertake serious, sweeping and potentially unpopular reform measures."

That's what was missing before, says Odling-Smee. The "crucial ingredient is a government and parliament genuinely committed to structural reforms and willing to implement measures that may be politically unpopular."

Without that kind of taking ownership, he says, outside financial help would do no good at all. There will be no outside miracles.

That is why IMF sources say Camdessus was not being coy when he told reporters on arrival in Moscow that he "came to get better acquainted with the prime minister and, I presume, have an interesting conversation with him."

Camdessus is discussing possible ways the global community can resume helping Russia. But the two men have never met before and first Camdessus wants to see if the current prime minister, his government, and the Duma, are ready to take ownership of a serious reform program.