The Russian economy has shrunk like cheap hamburger to half of what it was eight years ago. Is the reason (a) the legacy of communism? (b) lawlessness and corruption? (c) the war in Chechnya? or (d) the International Monetary Fund (IMF), which since 1991 has loaned Russia US$19 billion and pledged US$6 billion more?
If you chose (d), check the mirror. You may be Gennady Seleznev, the communist politician who presides over the State Duma, the lower house of Russia’s parliament. “Look how they mock us,” Seleznev said of the Fund, “sending one group after another…. Now [IMF Managing Director Michel] Camdessus has come and again asked us to wait until tomorrow” for more of the Fund’s hard cash. Enough of that nonsense, says Seleznev. “It’s high time to take off the shackles” of IMF discipline and let Russia run where it will.
In fact, IMF money, along with the billions which private investors poured into Russian stocks and bonds, allowed Russia to escape for many years the discipline which IMF technocrats hoped to enforce. The inflow of public and private capital inflated asset values, creating the illusion of wealth for a government unable even to pay its army and the illusion of stability for a currency sustained by a pyramid of debt. When private investors pulled out in the spring of this year, the Fund threw a final US$4.8 billion into the Russian treasury, only to see the Central Bank in a matter of days violate the terms under which it took the money by devaluing the ruble and defaulting on government debt. Some shackles.
Speakers last week at a Washington IMF conference on Russia agreed that past lending had created “moral hazard”–a sense among speculators that some official agency would cover part or all of their losses. That encouraged private investors to put more money in Russian securities, and to keep it there longer, than they would otherwise have done, which meant the crash was bigger when it came. The consensus at the conference was that further lending now would only bail out the oligarchs. If the Fund refuses to make new loans or disbursements in 1999, it will take more money out of Russia than it puts in. Russia owes the Fund some US$4 billion in interest and principal in 1999, and under its charter the Fund cannot reschedule those payments.
Russia’s financial future looks grim. Gross domestic product by official estimates is 5 or 6 percent below year-ago levels, while prices have risen by 70 percent since last December. The ruble on Friday closed around 20 to the dollar, down over 10 percent for the week. Federal tax revenues are heading below 6 percent of GDP, while spending for 1999 is planned at 16 percent. No wonder the government still hesitates to send a draft budget to the Duma. A gap of 10 percent of GDP cannot be financed. Even massive money creation is unlikely to yield real gains in government revenue of more than 2 or 3 percent of GDP, at the cost of further destruction of savings. Bridges to Western financial institutions have been burned, bombed and blasted. Whether the Duma formally acts to approve it or not, most observers believe the budget will collapse in the first quarter of next year.