IMF RESUMES LOAN PAYMENTS.

The IMF announced on May 16 that it will resume payments to Russia under the $10.1 billion Extended Fund Facility agreed upon in March, 1996. The sum of $700 million, equivalent to two monthly loan payments, will be released shortly. The credit tranches for January, February, and March were suspended due to IMF concern over poor tax collection and federal wage and pension arrears, and the delayed tranches for November and December, 1996, were only released in February. (AP, May 17; Kommersant-daily, May 20)

The Russian government and Central Bank prepared a joint economic program for 1997 for the IMF back in February, and submitted a revised version at the end of April, but only now has the IMF given its seal of approval. As there is no sign yet of any radical improvement in tax collection, the IMF’s decision to restart lending is probably due to the fact that the government submitted to the Duma on May 5 a plan to slash budget spending by 20 percent. The IMF announcement comes just days before the Duma debate on the budget sequestration, which is set for May 23. The IMF presumably wants to show that the Russian government has the full backing of the international community as it embarks on that tough political battle. The IMF may also have been impressed by First Deputy Prime Minister Boris Nemtsov’s energetic commitment to reform of housing subsidies and the natural monopolies. In a sign of confidence in Russia’s new government, the IMF has also agreed to switch from monthly to quarterly monitoring of Russian economic performance. (Interfax, May 17)

The resumption of IMF lending is beneficial for the Russian government in three respects. First, the additional cash from the IMF will help plug the yawning gap in the federal budget, and may enable the government to fulfill its promise to pay off by July 1 federal wage and pension arrears, which still total some 12 trillion rubles ($2.1 billion). Second, IMF loans are significantly cheaper than other forms of lending. They carry an interest rate of 4.5-5.5 percent — about half the cost of the Eurobonds which Moscow has issued in the past six months. Third, the IMF’s endorsement of the government’s economic strategy helps ensure progress in the ongoing negotiations over the restructuring of Russia’s $75 billion debt to the London and Paris clubs of commercial and official creditors. (Rossiiskie vesti, May 6) The restructuring was agreed in principle last year but discussions continue over the details of the schedule of interest payments to the various creditors.

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