High prices for oil and gas brought Russia economic growth of nearly 8 percent last year and lifted foreign-exchange reserves to a record $30 billion. That gave the government the cushion it needed to turn down a proffered IMF line of credit last month and to reject a $1 billion World Bank loan earlier this week. Both loans had conditions attached that would have constrained Russia’s policymakers. “Once loans like this were important to us,” said Economy Minister German Gref, “but now things have changed.” The budget for 2001, enacted in December of last year, anticipated over $2 billion in new IMF and World Bank lending that now apparently will not occur.

Remarks like Gref’s feed the impatience of Western creditors waiting for Moscow to make good on its debts. German Chancellor Gerhard Schroeder, finishing talks with Putin yesterday, complained again about a lack of progress on this score. Russia owes Western government $14 billion this year in interest and principal on debts contracted by the Soviet Union. Payments are slated to rise to $19 billion in 2003.

Hanging on to the dollars has its downside, beyond a grouchy Schroeder. When the dollars are converted to rubles, the money supply grows. Last year, the money supply rose 70 percent, pushing ruble prices up by 30 percent while the ruble-dollar exchange rate scarcely moved. Industries not tied to the energy sector had trouble coping with the import competition. As Putin noted in his state-of-the-nation speech (see above), those industries received very little investment during last year’s boom. Now energy prices are falling and the boom is coming to an end, and Russian industry is no stronger than before. An opportunity to reduce debt and improve competitiveness has been lost.