Publication: Monitor Volume: 4 Issue: 176

Russian economic policy remains in a state of confusion with conflicting policy pronouncements coming from different parts of the government. Deputy Prime Minister Aleksandr Shokhin, who has oversight of financial policy, said yesterday that he would be negotiating over the next few days with the IMF about Western financial support (Itar-Tass, September 24). In public statements over the last few days, Shokhin has indicated that he is–not surprisingly–having great difficulty obtaining it. He has made it clear that he is against the rapid growth of the ruble money supply that other members of the government have been happily advocating.

But the budget deficit has to be financed somehow, and the Treasury-bill (GKO) market–on which the government had relied since early 1995– has collapsed. Shokhin has therefore pinned his hopes on a renewed flow of Western assistance–perhaps in the form of new lending, but more realistically by the release of tranches of an already agreed international loan to Russia. This requires Shokhin to come up with a package of financial stabilization measures. He has referred approvingly to the currency board proposal originally put forward by Boris Fedorov. Fedorov’s role, if any, in the new government remains unclear, however.

Indeed, it is hard to describe Prime Minister Yevgeny Primakov as having any clear economic policies. On September 24, Shokhin complained that Western donors were “painting Russia into a corner” by talking of waiting until the end of the year before deciding on any further release of credits (RTR, September 24). This could, he said, force Russia to default on its foreign debts. One difficulty here is that Russia has already defaulted on two categories of debt: first, by its August 17 unilateral restructuring of GKO debt, and, second, by its moratorium announced at the same time on some private debt service. The remaining category of debt–foreign currency sovereign debt–was already partially restructured in 1996-97. Western banks and governments fear that there will be a default on that too within the year.