IMF LENDING TO RUSSIA IS EFFECTIVELY SUSPENDED…

Political tensions between Moscow and G7 governments over the Russian military campaign in Chechnya have effectively suspended IMF lending to Russia (Washington Post, December 4; Reuters, December 8, 10). This de facto suspension is unlikely to have a short-run effect on the Russian economy. The longer-term implications for Russia, the IMF and the international community could be quite troubling, however.

Suspension of IMF lending for Russia does not come as a big surprise. Since the agreement between Moscow and the Fund in late July which created the US$4.5 billion standby credit, only one US$640 million quarterly tranche had been released. In the context of Russia’s external balances, however, US$640 million is not much money. Russia had recorded a US$21.2 billion trade surplus through the first nine months of the year. Despite making some US$9.0 billion dollars in sovereign debt-service payments during this time–including US$3.8 billion to the IMF–Russia is likely to report a current-account surplus of US$13-15 billion for the first three quarters, and some US$20 billion for 1999 as a whole. Russia’s fiscal balances are under greater strain, and Russia’s sovereign debt service payments are made from the federal budget. But if Russia can find US$3.8 billion to pay off the IMF in 1999, it can probably do without the US$2.6 billion in loans from the IMF which are anticipated in the 2000 budget. And Moscow certainly has had no trouble finding hundreds of millions (if not billions) of dollars to pay for its “antiterrorist operation” in Chechnya.

A growing economy and buoyant oil prices have boosted tax revenues in 1999 and allowed Moscow to remain current on all of its post-1991 dollar-denominated sovereign debt obligations. This could, of course, change in 2000. But Russia was able to cover these foreign obligations even when its economy and world oil prices were in free-fall after August 17, 1998. The removal of IMF lending–which in any case was directly tied to the servicing of Russia’s debt to the Fund–would therefore be unlikely to have dire consequences now or in 2000. Finally, the IMF has not declared Russia formally out of compliance with the July economic program. As a result, the World Bank and other bilateral lenders could continue to lend money to Russia, notwithstanding the IMF program’s de facto suspension. Likewise, Moscow’s negotiations with its London and Paris Club creditors can presumably continue.

…WITH UNCERTAIN LONG-TERM CONSEQUENCES.