Russia reaches accord with IMF on plan for loans

July 06, 1992|By Louis Uchitelle | Louis Uchitelle,New York Times News Service

MOSCOW -- The Russian government and the International Monetary Fund announced yesterday that they had reached a lending agreement that gives President Boris N. Yeltsin the endorsement he had sought from the West for his economic policies, but also commits him to cut back on government spending just when the deficit is rising sharply.

IMF officials did not comment on the plan, beyond acknowledging that Russia will qualify for a $1 billion IMF loan, once the agreement is ratified by the IMF board in August.

The IMF had been under pressure for weeks from the Bush administration to soften its usual requirements so that an agreement with the Yeltsin government could be announced before leaders of the seven richest industrialized nations begin their economic summit in Germany today. Mr. Yeltsin is to join President Bush and the other leaders in Munich on Wednesday.

IMF officials said in Washington 10 days ago that they planned to scale back their original plans for a multibillion-dollar package that would require more sweeping reforms from Moscow, and that they would instead seek a simplified agreement.

The formal announcement of the loan agreement yesterday came in a one-paragraph statement signed by Acting Prime Minister Yegor T. Gaidar and the IMF's managing director, Michel Camdessus. The statement spoke vaguely of "new measures" that will "strengthen the economic reforms and the stabilization program of the Russian Federation government."

The agreement appears to commit Russia to anti-spending policies just when Parliament is pressing for greater outlays to subsidize state-owned enterprises that have been hurt by a steep recession and by the transition to a market economy. As a result of those pressures, the budget deficit has risen sharply in recent weeks.

A government official said that to reach the agreement, the Russian government and the IMF had delayed talks on the issues of foreign debt and the IMF's desire for Russia to keep raising energy prices. The energy issue is one of the toughest issues in the talks because higher fuel prices would raise the cost of living.

Specifically, the agreement commits the government and Russia's central bank to maintain a ceiling on loans and adhere to spending guidelines, said Jeffrey Sachs, a Harvard University economist and a senior adviser to the government. Mr. Sachs took part in the IMF talks last week and returned to the United States on Saturday.

"The government is trying to resist the pressures in the country to spend, and is trying not to let matters get out of control," Mr. Sachs said in a telephone interview. "Mr. Gaidar is aware that if all the parliamentary pressures were met, that would put Russia into hyper-inflation, and the government is committed to resist this."

Mr. Gaidar and Mr. Camdessus had worked out the general terms for the $1 billion loan when they met in Washington two weeks ago. Although an IMF team had been trying to negotiate the details for the past week, success came only after Mr. Camdessus flew here from Washington and met with Mr. Yeltsin on Saturday.

A broader agreement, to be negotiated in two stages over the next six months, would release $24 billion in foreign assistance, including $4.5 billion from the IMF and the World Bank and $11 billion in direct credits from Western governments.

Before meeting with Mr. Camdessus, Mr. Yeltsin told reporters that Russia would rather forgo the $24 billion in loans than to submit to the IMF demands. He said the that IMF would have to ease up on its standard requirements because "Russia is unique and its reform is unique."

The IMF, however, eased up only slightly, accepting, for example, a monthly inflation rate of 7 percent to 9 percent instead of the 3 percent limit it had once sought. The current inflation rate in Russia is about 14 percent monthly, according to the government.

The IMF's proposals mainly seek to strengthen the ruble so that it is more readily convertible into hard currencies. A stable ruble, in turn, would help attract foreign investment and encourage trade, two other goals being sought by the fund.

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