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IMF Team Withholds Russia Bailout

September 25, 1998

MOSCOW (AP) _ Despite Russia’s pleas for cash, an International Monetary Fund team wrapped up a visit today without recommending that Moscow receive the next installment on a $22.6 billion loan package.

Russia wants the money to help stabilize an economy wracked by surging inflation, rising unemployment and a falling currency. But the IMF team left without agreeing to release additional money and will return for further negotiations on Oct. 12, the Interfax news agency reported.

``We have to reach some decisions by the end of October,″ Alexander Mozhin, the IMF’s acting director for Russia, was quoted as saying by Interfax.

Russia signed the loan agreement with the IMF and other international lenders in July, and shortly thereafter received the first installment from the IMF, worth $4.8 billion. However, that did not prevent Russia from sliding into a full-fledged crisis last month.

Russia has been hoping for another $4.3 billion by the end of September. But the IMF has indicated that it doesn’t intend to release more money to Russia until it’s satisfied that the country has sound economic policies in place.

``Reaching an agreement between the IMF and Russia is important for both of us,″ the head of the Russian delegation, Deputy Prime Minister Alexander Shokhin, said before today’s talks. ``Today we need such support very much.″

In another development, a plan to pay out money to Russians from their frozen bank accounts won’t begin until Nov. 30, two weeks later than previously planned, news reports said.

Russia’s new government is trying to bail out the country’s troubled commercial banks, which have been largely paralyzed by the economic crisis. Most major banks are either closed or have been conducting only limited transactions.

As part of a plan to protect ordinary citizens, the government has said that individual depositors may transfer their savings from the ailing commercial banks to the state-controlled Sberbank, where their money would be guaranteed by the government.

The deadline for transferring the accounts has been pushed back from Sept. 26 to Oct. 10, and the date for making withdrawals has been delayed from Nov. 15 to Nov. 30, the Central Bank said, according to Russian news agencies.

The Central Bank feared a collapse of the country’s banking system and on Sept. 2 ordered six of Russia’s largest banks to close their branches temporarily and transfer personal accounts to Sberbank.

However, many Russians keep their savings accounts in U.S. dollars, and those accounts will be converted to rubles at the official rate of Sept. 1, which was 9.3 rubles to the dollar.

That means people with dollar accounts are likely to lose a substantial portion of their money. The ruble is currently trading at around 15 to the dollar and is expected to go lower.

Some bank branches are still operating, but limit the amount of money that customers can withdraw. Most business accounts have been frozen, making it impossible for firms to make payments and bank transfers. This has clogged up the country’s entire financial network.

The new government of Prime Minister Yevgeny Primakov has been providing billions of rubles worth of credits and loans to the banks in a bid to revive the financial system.

Some banks have been clearing up their debts, but it’s still not clear which will be able to resume normal operations soon, and which are too debt-ridden to be rescued.

President Boris Yeltsin filled many of the empty Cabinet posts. Mikhail Zadornov, the finance minister in the previous government, will keep his job in the new government.

Meanwhile, Primakov said his government would try to clean up criminal activity in the country’s unregulated ``shadow economy.″

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