IMF MEETING WEIGHS RESULTS OF PAST SEVEN YEARS…

Two dozen outside experts from Europe, Russia and the United States were invited to a meeting yesterday (November 30) at the International Monetary Fund in Washington to analyze the state of economic reform in Russia and the impact of IMF lending over the past seven years. Those attending the meeting, which was chaired by the IMF Vice President Stanley Fischer, included Joseph Stiglitz, chief economist at the World Bank, Deputy Treasury Secretary Larry Summers and former First Deputy Prime Minister Boris Nemtsov. A Monitor correspondent also participated.

The IMF summoned the unprecedented meeting with outside specialists in response to Russia’s debt default in August. The general air was one of profound pessimism: a distinct sense that Russian reform has reached the end of the road, for the time being at least.

The IMF has lent a total of US$19 billion to Russia since 1991, and has devoted more staff to working with that country than to any other. Despite efforts to impose tight conditions on the disbursement of those loans, the Russian government has repeatedly slid out from the systematic pursuit of the desired structural reforms. Macroeconomic stabilization has only been achieved at the expense of massive government arrears and reckless borrowing undertaken as a way to finance an obstinately high deficit. Government spending has not fallen as fast as it should, tax revenues have collapsed and the Byzantine tax system has strangled new private businesses and deterred direct foreign investment. More troubling still has been the broad agreement that rampant corruption and rent-seeking by well-placed elites has hijacked the reform program, while factory managers and regional leaders conspire to keep loss-making enterprises afloat in the “virtual” barter economy. The Russian Central Bank was criticized by some at the meeting for having mismanaged monetary stabilization.

The blame for this state of affairs was laid squarely at the door of Russia’s political and economic elites. Very few of the meeting participants leveled direct criticism at the IMF for its past policies–perhaps because one of that organization’s leading critics, Harvard Professor Jeffrey Sachs, was not in attendance. Many of the officials present admitted that policies which looked right in 1991 turned out by 1998 to have produced unintended and highly undesirable consequences. However, despite this mea culpa they were less willing to contemplate a change of policy for the future. Rather, their feeling seemed to be that further lending is pointless until Russian leaders themselves come to their senses and see the need for structural reform. Several cited the example of Argentina, where leaders took twenty years to come around to the realization that market liberalization was needed.

… AND LOOKS TO AN UNCERTAIN FUTURE.