IMF Expected To Approve Russian Loan
Apr. 18, 1994
WASHINGTON (AP) _ The International Monetary Fund, in a surprising turnabout, is likely to approve a $1.5 billion loan to Russia this week that could open the way for billions of dollars of postponed Western assistance to begin flowing to President Boris Yeltsin's government.
IMF officials said that the loan proposal, which has already been endorsed by IMF Managing Director Michel Camdessus, is on the agenda for consideration by the agency's executive board Wednesday.
Officials, who spoke on condition of anonymity, said that barring any last- minute snags, it should win approval. The IMF loan will represent a vote of confidence by the agency in Russia's latest plan to get control of its economy.
It also represents a key hurdle Yeltsin's government had to clear in order to tap into even more substantial amounts of aid in the form of debt relief from Western creditors and project loans from the IMF's sister agency, the World Bank.
The IMF action would represent a surprising turn of events since the leading architects of Russia's reform resigned their Cabinet posts suddenly in January. They had charged that the opponents of economic reform had gained the upper hand following elections for a new parliament in which ultranationalists had made a strong showing.
Their departure prompted widespread hand-wringing in the West and dire warnings that Russia's economy, already in chaos, would spiral further out of control.
Vice President Al Gore and others in the Clinton administration openly criticized the IMF for being too tough in demanding that Russia rein in its economy. But the IMF got critical backing from Treasury Secretary Lloyd Bentsen. His view ultimately prevailed that Western aid would be wasted unless Russia got its economy under control by following IMF guidelines.
Camdessus reached agreement with Yeltsin's government last month on a package of proposals aimed at cutting inflation, which soared by 950 percent last year, to 7 percent a month and restraining the government's budget deficit.
While Russia has missed other similar targets, an IMF official said he was optimistic that the new program would allow the country to get control of inflation and finally stop the steep drop in economic output.
The official, who briefed reporters Friday on condition that his name not be used, said the $1.5 billion loan could be followed later this year with the start of $4 billion in more permanent IMF support. He said such a program ''could make a decisive contribution to allow Russia to stabilize its economy to start growing again.''
But others question whether Yeltsin will be able to live up to his deficit- reduction commitments given the heavy pressure he is facing to help millions of Russians already suffering from two years of market reforms.
The IMF official said he believed increased optimism was justified in part because the key members of the new parliament seemed committed to keeping economic reform on track.
''Possibly we had forgotten that there is a lot of irreversibility in what has already been achieved in Russia,'' he said, pointing to significant numbers of businesses that have already been privatized.
The official met with reporters to give an overview of the IMF's upcoming spring meetings, which will begin later in the week and will focus not only on Russia and other countries in economic turmoil but also the problems of slow growth in much of the industrialized world.
In the growth area, the IMF's official economic outlook, to be released Wednesday, has significantly boosted expectations for the United States while downgrading the forecast for the world's other two large economies, Japan and Germany, because of lingering recessions in those nations.
The official praised Germany's decision last week to cut key interest rates but said that further reductions would be needed.
For Japan, the official adopted a position similar to that of the Clinton administration. He said the government needs to do more in the way of extending tax cuts to spur domestic demand. He also suggested Japan could cut interest rates further given the high value of the yen and the absence of inflationary pressures.