Publication: Monitor Volume: 2 Issue: 39

The IMF’s conditions on budgetary and monetary policy may have been less of a sticking point than the condition on removing oil export taxes, but only because the key target is further off — one percent monthly inflation in December 1996 — and the appropriateness of policies directed toward it more open to interpretation. The budget for 1996 is based on a projection that includes an average monthly inflation rate of 1.9 percent. That is compatible with one percent by the end of the year, but almost all observers agree that the 1.9 percent figure was optimistic to begin with. The budget plan includes a deficit equal to 3.8 percent of GDP, of which just over one-third is supposed to be covered by external financing. The sum involved is believed to amount to $3.1 billion. Although this amount could almost be covered by the tranches of the new IMF loan to be disbursed this year, Russian policymakers seem to be counting instead on tapping international financial markets through bond issues.

The real issue is whether the budget deficit will in fact be kept to its planned level. Here the IMF’s apparent endorsement of Yeltsin’s promises to pay wage arrears is more problematic than it seems at first sight. Although Camdessus made it clear that YeltsinÕs pledge to pay arrears of wages to federal government employees (totaling as much as 3.5 trillion rubles, or $720 million) could be accommodated in the agreed plan, the IMF director referred only to the wage arrears of federal employees. Payments due to employees of regional governments, however, are also large and so are arrears in enterprises (especially in the defense sector) that are fulfilling government orders for which they have not been paid. In other words, Yeltsin’s promises extend well beyond what Camdessus has explicitly endorsed.

…IMF Loan Unlikely to Boost Yeltsin’s Re-election Chances.