In Light of Moscow’s Response to Crises, IMF to Resume Loans

Russia has weathered the world’s financial crises as well as could be expected and will be allowed to resume borrowing from a $9-billion loan program, the International Monetary Fund’s chief decided Thursday.

But Managing Director Michel Camdessus warned that much remains unknown about the risks facing this and other emerging markets from the economic turmoil that has rocked Asia for the last few months.

“I’ve come to tell Russia, ‘You are doing the right thing, but . . . be careful,’ ” Camdessus said after a meeting with President Boris N. Yeltsin. “We can’t be certain we understand everything about the crisis or that we’ve seen the end of it.”

Camdessus, who said he has undergone “sobering experiences” in evaluating the financial upheavals plaguing Asia, added that he hopes the lessons of the crises can be used to prevent a further spread of the havoc to Russia, which has already seen its stock market tumble and interest rates soar.

A joint statement issued by the IMF director and the Kremlin said Camdessus had authorized the release of $700 million in credits held up late last year because of Russia’s poor performance in tax collection. The statement also said that Russia’s right to borrow from the IMF had been extended through the end of 1999. The original three-year borrowing authorization was approved in March 1996 and would have expired at the end of this year.

No specific sums were mentioned for the fourth year of the loan program.

While the IMF decision might be interpreted by some as a clean bill of economic health for Russia, Camdessus intimated that severe doubts remain about some aspects of Moscow’s financial management and that the green light was given more out of fear that the consequences of denying credits could be worse.

He told Yeltsin and Prime Minister Viktor S. Chernomyrdin that banks need to be strengthened in Russia and that the still-pending 1998 federal budget must be reworked to lower expenditures. He also repeated the IMF’s demand that Russia adopt a rational tax code and improve collections.

Among other suggestions from Camdessus was that the government cease its costly practice of granting huge tax breaks and incentives for foreign auto makers investing in Russia.

“We don’t see a good reason for Russian taxpayers to subsidize big auto makers from the rest of the world,” the IMF chief said, referring to a recent decree by Yeltsin that also promises to retain steep import tariffs to protect the domestic market.

Despite that clear signal, Chernomyrdin immediately reiterated his government’s intention to continue supporting the auto industry.

Russia’s 1998 federal budget had been set for its fourth and final reading this week, but the vote was delayed after Yeltsin ordered further spending cuts.

Yeltsin’s demand for a “realistic budget” signaled that Russia intends to stick by the belt-tightening measures laid down by the IMF as conditions for loans.

Camdessus praised Russia’s Central Bank for “professional and persevering work in maintaining the currency.” The bank was finally able to lower interest rates Monday, from 42% to 39%, after three months of steady increases.

Higher interest rates were offered to protect the ruble amid the Asian turmoil because wary foreign investors sold off their Russian stocks in general fear of emerging markets. Without the attractive treasury bill rates, the investors might otherwise have converted their ruble share values to hard currencies and taken their money out of the country.