Publication: Monitor Volume: 5 Issue: 84

The reviews are coming in on the new deal between Russia and the International Monetary Fund (IMF), and it is safe to say that it the critics are, in general, less than overwhelmed. One leading economic reformer, Boris Fedorov, Russia’s former finance and deputy prime minister, said that Russia would have a very difficult time meeting the IMF terms for the agreement, by which Russia will receive US$4.5 billion over eighteen months. These include a sharp rise in taxes on gasoline and vodka, postponing a reduction in the value-added tax and restructuring or even bankrupting some of Russia’s insolvent but politically powerful commercial banks.

Fedorov noted that these measures, which will require Prime Minister Yevgeny Primakov’s cabinet to push some ten new laws through the leftist-dominated State Duma along with many more amendments to existing laws, resembled measures once pushed by former officials such as Yegor Gaidar and Anatoly Chubais–measures which, at the time, the Duma strongly opposed. “Because many the actions that the IMF has asked for were so unpopular with the parliament in the past, it is not clear why and how Mr. Primakov will do it,” Fedorov said (Reuters, April 29).

Fedorov’s views were echoed by Aleksandr Zhukov, the influential head of the State Duma’s budget committee, who said that the government will have to make a “colossal effort” to persuade the lower house of the Russian parliament to increase excises on alcohol and gasoline and to cancel reductions in the VAT. Duma election are set for December; Zhukov noted that such measures are “highly unpopular in an election year” (Reuters, April 29).

Fedorov also noted that the new IMF money will fall well short of what Russia needs to “solve the major problems of the fiscal imbalance.” Russia is supposed to make some US$17 billion in foreign debt payments this year, and even if US$8 billion or so in Soviet-era debt is written off, Russia will be behind the eight-ball even with the new IMF credits. Several economic observers–Otto Latsis of the newspaper “Novae izvestia” and Mikhail Berger of “Segodnya”–noted that the deal amounts to little more than a rollover of part of Russia’s foreign debt (NTV, April 29).

Nor is it clear how committed the Primakov government is to taking measures against large insolvent banks. Despite the fact that the IMF has made reforming the banking sector as one of its conditions, Central Bank Chairman Viktor Gerashchenko, has chosen to interpret this differently: he said yesterday that the new IMF deal had removed “time pressure” from the banking reform issue. The IMF, however, has also demanded that Russia give a full accounting on how a US$4.8 billion credit given before last August’s financial crash was used, and to explain why IMF funds earmarked in previous years for Russia’s Central Bank were placed with the offshore asset management company FIMACO (Moscow Times, April 30).

Whether Russia is willing to come clean on these issues–and whether the IMF is seriously insisting that it does–remains to be seen.

Ironically, some top opposition politicians–traditionally extremely suspicious of the IMF–cautiously welcomed the new agreement. Communist leader Gennady Zyuganov said it would have “a stabilizing effect on the economy and on the situation in the country” and promised to help the Primakov government pass laws “which will encourage production while preserving the country’s dignity and sovereignty” (Russian agencies, April 29). Zyuganov did not indicate whether he and his followers will agree to all the IMF conditions. Other top politicians, including Yegor Stroev, speaker of the Federation Council, the parliament’s upper chamber, also welcomed the IMF agreement, but said that the parliament would not agree to “political concessions” to the West in exchange for the IMF money.