Russia Gets $17-Billion Loan; Japan Reforms Put in Doubt

The International Monetary Fund and the World Bank came to the rescue of Russia’s beleaguered economy Monday, announcing preliminary approval of a $17.1-billion bailout eagerly sought by leaders of this land.

The loan package, welcomed by investors and praised by the Clinton administration, would let Russia refinance its huge short-term, high-interest debt and restore the confidence of foreign investors in the country’s economy--which has been battered by the Asian economic collapse and by the worldwide plunge in the price of oil.

But to qualify for the bailout, the Russian government must enact a sweeping package of budget cuts and tax increases that is now awaiting final action in the opposition-controlled Duma, Russia’s lower house of parliament. Russia must also take further steps to restructure its economy, increase competition and promote private enterprise.

Under the plan, Russia would borrow $11.6 billion from the IMF, $4 billion from the World Bank and $1.5 billion from the government of Japan. (Russian Prime Minister Sergei V. Kiriyenko arrived Monday in Tokyo for talks about securing the loans.) This money would come atop $5.5 billion in loans already pledged by the IMF and the World Bank. Russia would receive about a third of the money immediately, and the rest would be disbursed over the next 18 months.

“We are convinced that these resources will allow us to significantly strengthen the anti-crisis efforts of the government and will help to stabilize and strengthen the Russian economy,” said Anatoly B. Chubais, Russia’s special envoy to the international lending agencies.

Investors seemed to agree, and the Russian stock market jumped 9.15%--the largest one-day gain since October, as measured by the Russian Trading Service index--on news of the loan agreement.

“This new program of Russian policy commitments and international financial support can provide a sound basis for increased stability and confidence,” President Clinton said in a statement issued by the White House.

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Russia’s fiscal crisis has left the country facing huge short-term debts and unable to pay wages to millions of workers. Many investors have fled the Russian stock market, which had plummeted to a quarter of the value it held last fall.

The government has tried to lure investors back by offering treasury bills with interest rates as high as 150%. The Russian Central Bank also has spent $10 billion to prop up the nation’s currency. But pressure has remained on the government to devalue the ruble.

Russian President Boris N. Yeltsin recently warned of political instability if the country does not overcome the crisis soon.

The bailout, while designed in large part to calm investors, could force Russia--particularly the Duma--to enact painful fiscal measures it has resisted. Final approval of the new foreign loans depends on Russian adoption of an emergency package of 20 bills proposed by Yeltsin’s government. The measures would reduce government spending and impose various levies, including value-added taxes, local sales taxes and an imputed tax on small businesses.

“The strengthening of Russia’s economic policies--both fiscal and structural--the large additional financial resources, and the debt conversion scheme, should fundamentally improve the financial situation of the Russian government,” IMF Managing Director Michel Camdessus said in Washington.

The Duma is to take up the economic reform measures later this week--just before the IMF board meets in Washington next Monday to approve its share of the bailout. The World Bank will soon meet to consider its loan approval.

Echoing Yeltsin’s earlier threat that he will take “other measures” if the Duma does not act, Chubais indicated that the government is prepared to adopt much of the package without the backing of lawmakers, if necessary, to secure the loan. “We have built-in defense mechanisms,” he said in a television interview. “We count on understanding in the state Duma, but we are ready for any turn in the development of events.”

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While some Duma members welcomed the lenders’ willingness to assist Russia, others questioned how the loans could be spent and what conditions would be attached. “Right now, it reminds me of a piece of meat hung high enough over a dog’s head that he cannot reach it,” said Pavel G. Bunich, chairman of the Duma’s privatization committee. “It makes the dog salivate and bark, but it doesn’t feed it.”

Chubais, one of Yeltsin’s closest advisors, said the cash was needed to shore up the Central Bank’s sagging reserves, and that--if the economy rebounds quickly--much of the money could go unspent.

The loan will also enable Russia to refinance billions of dollars in short-term debt. Chubais argued that Russia does not have a “debt crisis” and that its debt ratio--more than 40% of its gross domestic product--is actually low by international standards.

“The problem of the Russian debt is not its size but its time structure,” he told reporters. “Most of the debts fall due in 1998, 1999 and 2000. In these conditions, the most civilized strategy is to change the structure of the debt.”

One step announced by negotiators is the immediate end to Russia’s issue of high-interest treasury bills that have financed the government through its crisis but boosted the country’s short-term debt. The government also will try to persuade investors holding treasury bills to switch to longer-term investments that Russia will offer.

“We believe that the program that we have been asked to support is a very strong one,” said Michael Carter, the World Bank’s lead negotiator.

“It is one which, we believe, will contribute over time to substantially strengthening Russia’s economic prospects and creating the basis for strong economic growth.”