G-7 Links $43-Billion Russian Aid to Brisk Reform Attempts

The $43.4-billion aid plan for Russia announced Thursday by the seven biggest industrial powers is largely old money in a new package, but it could still turn out to be key to President Boris N. Yeltsin’s hopes of creating a workable free-market economy out of the wreckage of communism, senior U.S. officials say.

“The number is not the important thing,” Russian Deputy Prime Minister for Finance Boris G. Fyodorov said Thursday. “What is important is . . . the conditions” under which the aid can be released.

For the first time, the world’s major economic powers have agreed to direct the International Monetary Fund and the World Bank to release a significant amount of aid to Russia--$2 billion in loans--almost immediately, and about $2 billion more soon after that.

The initial chunk of aid will move as soon as the Russian government writes a letter affirming its intention to bring its budget deficit and its Central Bank’s loose credit policy under control; the second chunk as soon as Russia implements the policy.

“They don’t even have to hit the target; all they have to do is try,” a senior U.S. official said.

Then, if Yeltsin and Fyodorov can succeed in controlling the Central Bank, even larger amounts of aid would follow, giving them the cash to move from simply “stabilizing” their economy to “restructuring” it, U.S. officials said.

The reason for the unusually easy conditions is straightforward, they said: Applying tougher conditions didn’t work.

Last year, the same seven countries--the United States, Japan, Germany, France, Italy, Britain and Canada--patched together a $24-billion package that was supposed to help Yeltsin launch his economic reforms. But only about half of that money was ever used--and even that was mostly in the form of loans that worsened Russia’s already heavy debt burden.

“Their conditions earlier were simply unreasonably tough,” Secretary of State Warren Christopher said.

Under last year’s program, Russia was eligible to receive big-ticket aid only after it fully implemented a sweeping reform program, including such politically complicated measures as large-scale conversion of state-owned industries into private enterprise.

Now, the Russians only have to meet three simpler conditions--reducing their budget deficit, money supply and credit supply--and they can receive some of the aid after every step.

Treasury Department officials, in what passes among international financial experts as a sexy slogan, dubbed this system “streamlined conditionality.”

There is still no guarantee that Yeltsin’s reforms will work, the officials concede, or even that he can gain control over the Central Bank, which now takes its direction from the largely anti-Yeltsin Parliament.

That issue will depend largely on the results of Russia’s referendum on Yeltsin’s rule, only nine days away.

“I think he can do it if he gets a substantial majority,” Christopher said.

In hopes of bolstering Yeltsin’s chances in the vote, the foreign ministers and finance ministers who gathered here trumpeted the big overall numbers in their aid plan--even though they admitted that the figures risk looking deceptive.

The largest pieces of the $43.4 billion package are not new, the officials admit, and the figure is almost entirely made up of loans, not gifts.

The package includes:

* $4.1 billion in quick-release stabilization loans from the IMF and World Bank; these are new, worked out earlier this month in advance of the Tokyo meeting.

* A separate $4.1-billion “stand-by loan” from the IMF; this was already available, but the conditions for its release have now been eased.

* A $6-billion fund to stabilize Russia’s currency, the ruble; this has been available since last year--and, if it is successful, would never actually be spent, since it is designed to back up the ruble after a successful economic reform is well under way.

* Up to $3.9 billion in various World Bank loans to help finance imports and reform the Russian oil industry; most of these were already available.

* $10 billion in export credits and guarantees; these are loans and guarantees offered by individual governments to help their own industries export goods, such as U.S. grain and oil equipment, to Russia. While this is “new” money, it probably would have been made available regardless of what government is in power in Moscow. The level of $10 billion is actually slightly lower than the total granted last year for exports to Russia.

* $15 billion in deferred payments on Russia’s debts to other governments. U.S. officials don’t count this as a central part of the aid program, but other governments, who are absorbing more of the impact, do.

President Clinton urged the other governments to offer new packages of direct “bilateral” aid to Russia as well, following his own announcement at the Vancouver summit two weeks ago of $1.6 billion in U.S. bilateral aid.

But aside from Japan, which announced a package of $1.8 billion--mostly in export credits, to help Japanese industries sell their goods in Russia--no one else took up the challenge in Tokyo.

Clinton promised another $1.8 in American aid, more than doubling his previous figure.

But on the official fact sheet released by Japanese officials at the end of the Tokyo meeting, there was a line labeled “bilateral assistance’--followed only by an eloquent blank space.