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Russia: IMF Threatens To Refuse Loans For Spending On Chechnya War

The IMF issued a warning to Russia yesterday, saying it will continue to release agreed loans but that this aid will be suspended if military spending increases too much. But no one really doubts that Russia will increase its military spending. RFE/RL correspondent Sophie Lambroschini reports that lawmakers and analysts are working their calculators to figure out how much the Chechen war will cost -- and how to pay for it.

Prague, 14 October 1999 (RFE/RL) -- Russian authorities may think that the war in Chechnya is indispensable from a geopolitical point of view -- or a pre-electoral point of view. But Russia's flailing economy could surely do without it. While the International Monetary Fund (IMF) has warned Russia against increased military spending, Russian media and experts are playing guessing games about how much the war will actually cost.

The director of the IMF, Michel Camdessus, said yesterday that the fund might limit its aid to Moscow because of the war in Chechnya. He said the IMF would continue to release agreed loans to Russia. But he said the aid will be suspended if military spending surges.

Reacting to Camdessus's statement, Prime Minister Vladimir Putin said today the military operation in Chechnya is being financed by a budget surplus. He said the military expenses are not linked in any way to the IMF loans.

The generally accepted figure for Russia's budget surplus, however, is only the equivalent of about $3 million. The last Chechen war cost more than $5 billion.

Camdessus avoided commenting on the war, saying on French radio that the role of the IMF is to judge only a country's economic policy. He said IMF loans will be interrupted, in his words, "if the budget overshoots because of an uncontrolled increase of military spending."

The IMF was sharply criticized a few years ago for indirectly financing the first Chechen campaign, from 1994 to 1996. The fund has refused to lend to other countries because of their spending on military campaigns -- earlier this month, it postponed a loan to Zimbabwe because of that country's involvement in the Congo conflict.

Mikhail Delyagin, a policy analyst based in Moscow, told RFE/RL last week that Russian authorities do not anticipate that the cost of the Chechen conflict will be very great. Delyagin said: "The Russian armed forces will just do what they know how to do -- scrimp and save on the backs of the Russian soldiers."

Already, some media reports say that in some units, soldiers are fed only twice a day. In a recent report from his Institute for Globalization Problems, Delyagin says the soldiers have not been paid for a month.

But he also says this second Chechen war could be waged much more cheaply than the first. According to his calculations, establishing and maintaining the sanitary zone in parts of Chechnya and along the border would cost less than a quarter of what the first war cost. That will only be true, however, if the army stops at the sanitary zone in northern Chechnya. A push to Grozny could be very costly, Delyagin says.

And peace with Chechnya would be a lot cheaper, he says, citing figures that Russia spent a mere $200 million on the province during the first half of 1999, including expenses for gas, electricity, and pensions.

An analysis in one Russian magazine, however, came to the opposite conclusion. Peace with Chechnya is more expensive than war, says the Russian weekly Kommersant-Vlast. To come to this controversial result, the newspaper takes into account the alleged damage done by the Chechen mafia before the current conflict. It estimates losses through forgeries and thefts of cars and livestock allegedly committed by Chechen bandits.

Putting a reliable price-tag on the war or the peace seems an impossible task. But improvising new financial sources seems even more of a challenge.

When drawing up the 1999 budget, lawmakers had already counted on aid from the IMF to boost their estimated revenues. The parliamentary-government commission that has been working on a compromise for Russia's year 2000 budget has settled on a 25 percent increase for the military. That brings the military's budget to one-fifth of the total Russian budget of $23 billion.

Viktor Gerashenko, the head of the Central Bank, said this week that Russia may issue war bonds. There is also talk of increasing taxes on Russian oil companies, which are said to be doing quite well since world oil prices recovered this year.

In any case, analysts agree that military strategy seems to blot out the voice of economic reason. The English-language daily Moscow Times quoted one economist as saying: "If they (the government) don't have the money, they'll print money."