Publication: Monitor Volume: 6 Issue: 70

While the International Monetary Fund and the Russian government have committed themselves to future cooperation and a constructive relationship, acting IMF Director Stanley Fischer’s visit to Moscow this week did not yield concrete promises of aid. The Russian side, for its part, seems resigned to getting by without IMF loans, at least for the time being. Fischer met yesterday with President-elect Vladimir Putin. At the meeting’s outset, Putin said that his government was determined to “develop” its relations with the IMF and other international financial institutions. Fischer, meanwhile, said prior to the meeting that Putin’s recent election victory and last December’s State Duma elections provided a “rare opportunity for a new beginning” in relations with Russia.

Following the August 1998 financial meltdown, the IMF delayed further disbursals from a US$4.5 billion loan program, much of which were meant to be used to pay back Russia’s debt to international creditors, including the IMF itself. Last September the Fund froze the loan program, on the grounds that the Russian government had failed to implement the structural reforms. And despite yesterday’s happy talk about a “new beginning,” Fischer stressed that “many, if not most” of these structural reforms have still not been implemented, adding that the government’s “poor record” in this area reflected its failure to “overcome fierce resistance from vested interests.” The IMF director said that the recent growth of the Russian economy was due largely to the stimulative effect of the August 1998 ruble devaluation and record high world oil prices–conditions that could disappear quickly. He said sustained economic growth would be possible only if the country’s industrial and agricultural sectors, tax system, banking system and its Central Bank were restructured and reformed. Fischer also stressed that the billions of dollars that have fled Russia in recent years would not return until a proper investment climate was created (Russian agencies, April 6; Moscow Times, April 7).

For its part, the Russian government seems resigned to the fact that fresh IMF credits will not be released in the immediate future. First Deputy Prime Minister Mikhail Kasyanov, who is widely seen as the frontrunner to become prime minister in Putin’s new cabinet, said in an interview published yesterday that because of a favorable budgetary situation, Russia needed only US$1.5 billion from the IMF to make its foreign debt payments. He said that there would be “no drama” if no IMF money was forthcoming in the near future–that it would simply mean a delay in disbursing overdue government payments to defense plants and various regions. Kasyanov predicted, however, that Russia would receive new credits no later than June (Kommersant, April 6).

Deputy Prime Minister Viktor Khristenko said yesterday that Putin and Fischer had agreed that a new program of “cooperation” between Russia and the IMF would be ready by July. Other officials noted that a new program with the IMF could not be worked out until after Putin’s inauguration–now set for May 7–and the unveiling of his cabinet and his economic program (Russian agencies, April 6-7). Putin’s economic program is being prepared by the Center for Strategic Research, the presidential policy think tank headed by German Gref, first deputy property minister. Gref and other members of the Center have promised a “radical” market-oriented reform program that will include significant tax cuts.

In an interview published today, a leading politician who met with Fischer this week predicted that the IMF would resume lending to Russia. Former Prime Minister Sergei Kirienko, who currently heads the Union of Right-Wing Forces, said that the Fund and Fischer himself understood that Putin had made his “economic choice”–to move in the direction of market reforms. Kirienko said, however, that the Fund was “wary” about how quickly the Putin government would be able to implement the reforms, and thus that the State Duma needed to pass a number of economic laws as soon as possible (Segodnya, April 7). Gref and others have said that they hope the Duma quickly approves new tax and land codes. While the tax code is likely to pass the Duma without major opposition, the land code–which is likely to include provisions allowing the free sale of land–is likely to encounter resistance from the Communists and other leftist factions in the Duma.

It is unlikely that Kirienko’s optimism over future relations between Russia and the IMF reflects the real feelings on either side. The IMF’s reputation was badly tarnished by the 1998 economic crisis, when the Russian government, then headed by Kirienko, defaulted on billions of dollars worth of short-term Treasury bills and devalued the ruble. The Fund’s image was further damaged by allegations that Russia’s Central Bank had lied about the level of its hard currency reserves or even misused IMF money. The tone of Fischer’s remarks yesterday reflected the IMF’s wariness about getting burned again. Many on the Russian side, in turn, have become suspicious of the Fund. Some Russian politicians and observers say that the IMF’s decision to freeze loans last September was punishment for the war in Chechnya. Mikhail Zadornov, the former finance minister, said this week that the Russia’s political elite had grown more suspicious of IMF advice, because it increasingly views the Fund as an “instrument of the G7’s political influence” (Financial Times, April 7). The fact that Zadornov, a member of Yabloko who is well over on the liberal side of the political spectrum, would voice such views, reflects the degree to which Russia’s political elite has become anti-Western.