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Russia: IMF Seeks Transparency

An International Monetary Fund delegation traveled to Moscow on Monday to determine whether Russia should receive the second installment of a loan that was frozen in September. RFE/RL's Moscow correspondent Sophie Lambroschini looks at the ongoing dispute between Russia and the IMF.

Moscow, 9 November 1999 (RFE/RL) -- The IMF delegation which arrived in Moscow on Monday is seeking to determine how far Russia has come toward in making its financial transactions easily traceable, or what economists call "transparent."

The world lending institution has set conditions that Russia must meet in order to receive the second installment, worth $640 million, of a $4.5 billion loan. While the IMF had transferred a first installment in July, the second one was frozen in September after several financial scandals implied possible misuse of previous loans.

The conditions include tighter spending policy, regular audits of the Russian Central Bank's dealings with its structures in other countries, an audit of the Russian Savings Bank, and the adoption of international accounting standards.

According to Russian media reports, Russian authorities have balked at these new conditions. Aleksandr Livshitz, the Russian minister responsible for relations with international financial organizations, complained last month that the West was imposing higher standards of transparency on Russia than it was applying to itself.

Russia's relations with the Fund have been increasingly strained these past months amid allegations that the country has misused previous loans and increased its military budget to finance the war in Chechnya.

But Russian authorities express optimism that they will receive the installment. And they also express a stiff-necked determination to continue their economic policies, despite IMF criticism.

Russian Prime Minister Vladimir Putin announced at a cabinet meeting on Thursday (Nov. 4) that positive economic trends are continuing, with growth in gross domestic product (GDP) of 1.8 percent last quarter. Controlled inflation and higher-than-expected tax revenues are further strong points for a country struggling to emerge from the economic crisis of 1998.

John Paul Smith is an expert in emerging markets with the investment firm Morgan Stanley. In a presentation to investors this week, he gave a carefully optimistic analysis of the Russian economy. In Smith's words: "There is a clear potential for a shift to more positive factors." He says the economic situation is better than anyone could have predicted.

Smith attributes this to a pick-up in industrial production and the rise in global oil prices. He also notes an improvement of the fiscal situation due to some small-scale reforms in collecting taxes.

Smith warns, however, that Russian policy makers should not see this improvement as the start of a general economic regeneration. He says the rise in industrial production is mainly due to the devaluation of the ruble and the resulting cheapness of Russian goods on world markets.

Smith also notes that Russia should build on the benefits of the devaluation by implementing further economic reforms. He warns that if the federal government increases the expenditure level too much, it might squander these advantages.

This is precisely what the IMF is worried about. A tough budgetary policy was one of the IMF's conditions for releasing the loan installment. But budgetary restraint is one of Russia's main "little sins," as the finance minister puts it.

Last month, Russia increased its military budget to fund the war in Chechnya, prompting complaint from the IMF. Russia argued that the Chechen war is being financed by the extra revenues collected. And this month, the Duma approved an extra 6 billion rubles ($229 million) of spending. The government said it had to accept the increase to get the budget past the leftist-dominated Duma.

So far, these explanations have not convinced the IMF. This might become a major stumbling block next week.

Russian officials are suspecting the West of exacting financial blackmail to force Russia to compromise on Chechnya. Putin snapped that Russia would not sacrifice its national interests in exchange for what he called "financial lollipops."

Russian energy company head Anatoly Chubais, a former prime minister and former Russian contact person for the international financial organizations, tried to defuse these tensions. Chubais said the IMF had not imposed any political conditions.

"In the list of conditions it is not written that the Bank of New York will not work with Russian importers. In the list of conditions it does not say that Russia should not fight terrorism in Chechnya. I am categorically against pulling the IMF into semi-political decisions on that [issue]. If this does not happen, if the IMF fulfills its obligations, if Russia fulfills its obligations in regard to its interest, then there is a real chance of solving the problem by early December."

Even if the second installment of the loan is released, it will not provide Russia with any cash. The loan would go exclusively to repay Russia's debt to the fund, bypassing Russian institutions completely to end up back in IMF coffers.