Publication: Monitor Volume: 4 Issue: 231

The Russian government got a bit of a boost–at least a psychological one–on Monday from top officials of several international lending organizations. Horst Koehler, head of the European Bank for Reconstruction and Development (EBRD), said the EBRD would commit US$1 billion for funding new projects if Russia takes steps to improve its investment climate. Koehler was among a group of foreign investors who gathered in Moscow for the quarterly meeting of the Foreign Investment Advisory Council. Meanwhile, in Washington, Stanley Fischer, deputy director of the IMF, told a conference in Washington that the government of Prime Minister Yevgeny Primakov has shown that it is not planning to change the basic direction of Russia’s economic strategy since 1991, aimed at cooperation with the West “on the basis of the global economy.” Fischer said Russia’s main task was to restore “macroeconomic stability,” which required a “realistic budget.” Johannes Linn, vice president of the World Bank, said Russia’s foreign partners, including the IMF, the World Bank and the EBRD, “can help and will help” Russia (Prime Tass, December 15).

Primakov assured participants in the Moscow meeting that his government would not embark on a large-scale monetary emission nor undertake nationalizations, except in the case of “certain privatization auctions” in which legality was in question. Primakov said that in order to restore the faith of investors, both the effects of last August’s financial crisis had to be overcome and “stable legal and investment bases” needed to be created. To this end, he said, the government would push for the passage of laws covering foreign investments and lower taxes on producers. He also reiterated the government’s plans to create a large state insurance company and state development bank. First Vice Prime Minister Yuri Maslyukov noted that the parliament recently passed a law on production-sharing agreements and has granted investors exemptions from profit tax during the initial period of their investment projects (Russian agencies, December 14). One newspaper noted, however, that most of legislation the desired by both foreign and domestic investors has been “gathering dust” in the State Duma for several years already (Segodnya, December 15).

The comments of the Western officials would suggest a slight change in the mood music concerning economic aid to Russia. Some Russian officials have expressed optimism that it will be able to convince the IMF to restart the flow of credits next year. IMF aid is important, not only in and of itself, but as a signal to other international donors and creditors that Russia is creditworthy. On the other hand, the World Bank’s Linn gave a rather gloomy forecast for the Russian economy. One possible scenario, he said, was a 10-15 percent additional drop in Russia’s industrial production, followed by “stagnation.” Linn called this a “soft landing,” adding that the situation could be “quite severe” if Russia fails to reschedule its debts and win new international loans. One observer predicted that if this worst-case scenario becomes a reality, the government will be left with a budget deficit of US$15.5 billion–at least 325 billion rubles, well over half of the total budget, which could be closed only with “325 billion hastily printed rubles, or Russia’s default on its foreign debts” (Moscow Times, December 15).