IMF Consents to Russian Loans--With a Catch

The International Monetary Fund gave formal approval Monday to $11.2 billion in new loans to Russia but--in an unusual move--scaled back the first installment as a warning to the Russian parliament to stop dragging its feet on enacting key financial reforms.

In a blunt message to Moscow, the IMF’s 24-member executive board set the first installment of the loan package at $4.8 billion, about $800 million short of what had been expected. IMF officials said the money would be added to later installments if the Russians enact the reforms.

The IMF reacted to the failure of the Duma, the opposition-dominated lower house of Russia’s parliament, to enact several of the reforms that the government of Russian President Boris N. Yeltsin had promised, including raising some property taxes and strengthening Russia’s tax-collection system.

Yeltsin had sought to bypass the Duma on Sunday by issuing a series of decrees that would quintuple some land taxes. But his advisors conceded that they remained $5 billion short of balancing their budget--one of the IMF’s key demands.

Despite the highly visible warning, approval of the loan installment paves the way for Yeltsin’s new reform government to move ahead with plans to put Russia’s fiscal house in order after years of disarray and indecision after the breakup of the Soviet Union.

As the IMF board debated the Russian loan program, Anatoly B. Chubais, Yeltsin’s chief debt negotiator, told reporters here that he was confident that Russia would be able to satisfy IMF demands in time to recoup the extra $800 million in the next installment.

“I don’t think it will be a [long-term] reduction,” he said, referring to the IMF decision to scale back the initial portion of the loan. He said a temporary cutback of less than $1 billion would not hurt the Russian economy.

The action by the IMF was welcomed by the Clinton administration, which had pressured the 182-country organization to go ahead with the new loans despite apprehension by top IMF officials over the pace of reform.

Beyond the $4.8 billion approved by the IMF board Monday, the fund agreed to make available an additional $7.5 billion between now and year’s end, including $1.3 billion in unreleased installments from previous loans.

It also will lend Moscow an additional $2.6 billion in 1999.

Russia also is to receive about $6 billion in loans from the World Bank between now and late 1999 and $1.5 billion in bilateral credits from Japan. The United States is not providing any direct aid beyond what it ordinarily contributes as its share of IMF resources.

Both U.S. and IMF officials say the loan to Russia will leave the organization’s general lending pool at about $13 billion, a historic low and nowhere near enough to meet any new outbreaks in the Asian financial crisis.

The need for the rescue package became apparent four weeks ago, when financial markets began signaling their apprehension about Russia’s ability to repay foreign bank loans and maintain the stability of the ruble.

Some analysts had feared that the Russian economy would have collapsed had the IMF not agreed to provide the rescue package. They attributed part of the markets’ concern to general jitters among investors as a result of the Asian financial crisis.

The magnitude of the IMF package is expected to relieve Russia of the need to seek more loans from commercial banks, which would only add to its fiscal problems.

The IMF listed two specific reforms that it wants the Duma to enact quickly: improving the collection of individual income taxes and bolstering the Russian pension system, which is not fully funded and is administered haphazardly.

The IMF action came as Republican congressional leaders reaffirmed their opposition to President Clinton’s request for an $18-billion line of credit for the IMF.

House Majority Leader Dick Armey (R-Tex.) said the House would take up a bill allowing only $3.4 billion for the IMF replenishment and warned that any efforts to increase that figure would run into heavy of opposition.

He also called for a major overhaul of IMF policies.

Before the IMF vote Monday, Chubais met privately with senior Treasury Department officials and with Secretary of State Madeleine Albright.

Times staff writer Marc Lacey in New Orleans also contributed to this report.