Thus far, Western desire to keep Russia engaged in Europe, in the hopes of eventually establishing a constructive relationship with what is still a potentially great power, has been strong enough to overcome frustration at Russia’s fickleness, irritation at Russia’s truculence, and disgust at Russia’s corruption. The International Monetary Fund in particular has shown a saintly forbearance utterly incompatible with its pursy banker’s image. The Fund’s managing director, Michel Camdessus, in a typically elegant speech to a business audience in St. Petersburg, quoted Aleksandr Pushkin in support of capitalism and enumerated the conditions for economic recovery in Russia: the rule of law, competition, transparency and accountability, equity, and an end to barter and corruption. What Russia does not need, he stressed, is a command economy, protectionism or more foreign loans.
The same Camdessus, or someone wearing his suit, then turned and told Prime Minister Sergei Stepashin that Russia could get “rather large” loans if only the Duma would pass the package of reforms–mainly new taxes–the Fund has been urging.
While Camdessus and Stepashin talked up free markets in St. Petersburg, Stepashin’s deputy in Moscow signed a price-freeze agreement with over fifty of Russia’s largest companies, including the electric and gas monopolies UES and Gazprom. The price agreement is not much different from one proposed a year ago but never implemented due to IMF opposition. A day later the Duma rejected by a vote of 219-101-6 a gasoline tax that was a key part of the IMF-backed package. The vote undoes the government’s already flimsy budget projections for the second half of the year.
Few Duma deputies believe Stepashin will carry out his threat to dismiss the Duma and force early elections if the IMF-mandated reforms are defeated. And Duma deputies either don’t believe that the IMF will withhold further loans, or don’t care. Among Russia’s rulers, the Fund inspires neither respect nor fear.
The Group of Seven rich industrialized countries justified the Duma’s attitude at their meeting in Cologne over the weekend. The seven, who control a majority of votes on the IMF’s Board, said they would encourage the Fund to release $4.5 billion in credits that supposedly are tied to economic reform and to a satisfactory accounting of past loans. They agreed as well to assist in rescheduling, for the second time, Soviet-era debts that are the responsibility of the Russian government.
The $4.5 billion is part of a $19 billion IMF loan package approved last July but suspended after Russia’s devaluation and default last August. Its release now would allow the World Bank to resume lending and would help commercial banks justify to their regulators rolling over or rescheduling their outstanding Russian credits.
The IMF Board does not meet until July, so there will be some uncertainty until then. But quoting Pushkin won’t be enough to persuade the Duma, or anyone else, that Western money depends on Russian compliance with IMF conditions.