IMF, Russia Open Talks on Large Loan

The International Monetary Fund said Friday that it had begun preliminary talks with Russia on a new multibillion-dollar loan package, though officials do not expect to complete the negotiations for weeks.

Michael Mussa, the organization’s research director, said a “further support package” was being “actively discussed.” He declined to provide specifics on how big the rescue effort might be or what additional reform measures the IMF was likely to demand.

Anatoly B. Chubais, Russia’s top negotiator, said in Moscow that the government had asked the IMF for a loan package of $10 billion to $15 billion--but the latter figure was not likely to be granted, Western financial officials said.

The expanded rescue effort, backed by the Clinton administration, comes on the heels of IMF approval on Thursday of a $670-million installment of a previous $9.2-billion IMF loan to Russia.

Russia has said it needs the money to bolster its economy and defend its currency, the ruble, from a new wave of capital flight stemming from investor worries about Moscow’s economic management.

At the IMF’s insistence, Russian President Boris N. Yeltsin has ordered major economic reforms, including establishment of a more effective tax system and deeper budget cuts that will mean privatizing several state-run enterprises.

Although Moscow’s most recent efforts have helped stabilize the markets somewhat, the economy still has been vulnerable. Russia’s Central Bank had to raise its key interest rate from 60% to 80% Friday to stop heavy selling of its treasury bonds.

Russia’s benchmark stock index slumped to a 20-month low on Friday and bonds declined sharply, largely over market fears that the new package will not come for several more months. The value of the ruble fell further.

U.S. and other Western officials have been cautioning that talk of any new, expanded rescue package will first have to await IMF action on the $670-million installment that was approved Thursday. The package would then be subject to negotiations that could take months.

On Friday, Russian and Western officials were talking about speeding up both the talks and any new Russian reform measures that the IMF may demand in exchange, in hopes of completing action on the new package as early as late July.

Some analysts fear that a long delay could leave Moscow facing a serious run on its currency, forcing it to devalue--a step that would only worsen problems in its banking system and make it less competitive. Mussa said Russia was “too important to fail.”

IMF officials insisted that the organization will not approve any new loan package until Russia takes more steps to shore up its budget and toughen its tax system, which now lets many corporations and individuals escape taxes entirely. IMF officials also suggested that a key part of the accord will center on prodding big Western banks that have outstanding loans to Russia to reschedule those arrangements so they too end up “sharing the burden” of any bailout.

Russia’s outstanding loans from major Western banks now total about $70 billion. The IMF had pressed for a similar arrangement with commercial banks that had outstanding loans to South Korea, with some modest success.