Publication: Monitor Volume: 5 Issue: 231

The suspension of IMF lending could have important longer-term economic implications, for both Russia and the international community. For one thing, tensions between Russia and the G7 countries are currently at a height not seen since Mikhail Gorbachev came to power in the USSR in 1985. The suspension of IMF lending on the basis of what are largely political criteria only further cement Russia’s emerging anti-Western political consensus. If the goal of suspending IMF lending is to promote a reversal in Russian foreign policy, it may have the opposite effect.

The suspension of IMF lending could also raise serious questions about the Fund’s past, present and future lending in Russia and the developing world more generally. The resignation of IMF Managing Director Camdessus–a leading proponent of engagement with Russia–announced last month occurred against a backdrop of significant debate over the desirability of the “Washington consensus” which has for decades underpinned IMF and World Bank activities in developing countries. Many observers have charged the IMF with helping to “lose Russia,” as well as with imposing self-defeating austerity programs on the East Asian economies after their 1997 currency crises. The controversial restarting–and now suspension–of IMF lending to Russia in 1999 is likely to add further fuel to these fires.

The irony of the Fund’s suspension of Russian lending is that the decision can be justified on solid economic grounds, in terms of the Russian government’s July 1999 economic program. While Moscow has met or exceeded many of its fiscal targets, it has clearly fallen short of many others. These include promises to: (1) subject the parastatals that dominate Russia’s energy, transport and banking sectors to comprehensive financial audits; and (2) desist from administrative regulation of prices and exports in the energy sector. These promises have largely been honored in the breech.

To be fair, the IMF has justified the suspension of lending to Russia with references to Moscow’s “inadequate structural reforms.” But the overall political context of the suspension, and especially comments of German and French government officials clearly linking the IMF decision to the war in Chechnya, make a mockery of such references. Instead, politics are once again dictating the Russian-IMF relationship. The only difference is that, in contrast to previous IMF lending to Russia, important political forces are now arrayed against, rather than for, the release of credits. Whether the IMF’s ability to impose future conditionalities on borrowers that reflect economic (as opposed to political) logic will be further damaged by this turn of events remains to be seen.