RUSSIA EXPECTS FURTHER DECLINE IN TRADE CREDITS IN 1998.

Russia expects to have to borrow only $3 billion from international lenders and foreign governments in 1998, Deputy Finance Minister Mikhail Kasyanov told the Russian press last week. This represents a decline from the $12 billion borrowed from foreign governments in 1992, in order to finance Russia’s imports. (AFI, September 1) This declining borrowing trend reflects the growing ability of Russian importers to finance their own purchases abroad, which is primarily a consequence of the growing stock of dollars in the Russian economy.

According to Kasyanov, Russian foreign trade policy since 1992 has been directed at "continually reducing the volume of trade credits" used, especially those provided by foreign governments. (AFI, September 1) Indeed, the figure for 1992 — $12 billion — had fallen to $1.9 billion in 1996, and is expected to be $1.8 billion next year. (The remainder of the $3 billion is to be supplied by the World Bank and EBRD.) Russia’s growing imports (from $43 billion in 1992 to $60 billion in 1996) have therefore been financed by rising inflows of foreign exchange. According to Russian Central Bank data, foreign cash worth $15.6 billion dollars entered Russia during the first half of 1997, while only $300 million was reported leaving the country. (AFI, September 5) These funds do not include the disbursements of Russia’s $10.1 billion three-year extended funding facility credit supplied by the IMF — the most recent tranche of which ($654 million) was approved by the IMF board of governors last week. (Russian agencies, September 4) Nor do they include foreign exchange that enters the Russian banking system via foreign direct or portfolio investment.

The declining role of trade credits in Russia’s external finance affords Russian importers more freedom, since such credits are usually tied to the purchase of specific goods that are produced by exporters in the country making the loan. The growth in Russia’s foreign exchange reserves also reduces the need for further borrowing from the IMF or international capital markets. Should it continue, however, the influx of foreign exchange could ultimately lead to an inflationary expansion in the money supply, or it could cause the ruble to appreciate faster than is desirable. Moreover, the cash inflow also reflects the population’s unwillingness to save in rubles, and indicates that the dollar continues to be the financial instrument of choice for much of the Russian economy.

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