Shadow Falls Over Russian Economy Ahead Of Imf

Helped by a $10 billion three-year IMF loan, subject to tough monthly monitoring, Russia has slashed inflation and is seeing the first signs of economic growth.

On the surface, and in reality, things are going pretty well in the economic sphere, said a senior Western economist.

Russia's team at the annual meetings will be led by new economic chief Vladimir Potanin, 35, a former commercial banker who has little experience of politics.

But he has a heady message for Washington.

Consumer prices fell 0.2 per cent in August after a 17.8 per cent rise in January 1995. The government is forecasting a rate for the year of 22 per cent, compared with 131 per cent in 1995, although the actual rate may be lower than that.

 

Industrial output, half what it was when economic reform began in 1992, has started to pick up. Economists expect gross domestic product to grow next year.

The rouble is relatively stable and progress has been made in rescheduling Russia's debts to the London and Paris Clubs of commercial bank and government creditors.

A debut Eurobond is in preparation.

But there have been hitches along the way.

The IMF delayed payment of its July tranche of the loan because of concern over the budget deficit, swollen by high yields paid on Treasury bills and tax exemptions handed out during the presidential election campaign.

The money was eventually paid, new budget targets were agreed and the IMF said reform was back on track.

The programme has been renegotiated and approved so there is no special need to get anything else from the IMF/World Bank meeting, said Jochen Wermuth, head of the Economic Expert Group at the Finance Ministry.

Russia's new government has declared war on tax dodgers, but revenues will still be the number one issue in Washington, the economist said.

The Russian economy is mired in a non-payments crisis which means workers and pensioners are not paid for months and firms run up vast debts to suppliers and to the tax authorities.

Analysts said the IMF would be keen for assurances that revenues will be sufficient to keep the budget deficit and inflation down and to cover necessary social spending.

It is a matter of political will. The highest authorities have got to make it clear to everybody about tax collection, the economist said.

However, Russia is undergoing a period of deep political uncertainty. President Boris Yeltsin, who wields enormous power, is preparing for heart surgery. This has unnerved markets and Russian stocks and bonds have fallen sharply.

Analysts say investors feared a period of drift in the economy, rather than any full-scale reversal of reform.

Wermuth said concern was misplaced. Business is going on as usual, he said.

Apart from Yeltsin's health, foreign investors often cite the state of the banking system as an obstacle to putting their money into Russia.

Central bank chairman Sergei Dubinin, who will be in Washington, has said there is no systemic crisis.

Kremlin aide Mikhail Delyagin said Russia had entered a new low-inflation era which demanded understanding from the IMF.

I hope they understand that reform is continuing and has entered a new phase and that they understand the difficulties Russia has met in this new phase, he said.