Russia to seek cuts to get aid $24 billion hinges on slashing deficit, prices

July 13, 1992|By Los Angeles Times News Service

WASHINGTON -- Russia has agreed to seek drastic reductions in its growing budget deficit and soaring inflation rate obtain the $24 billion aid package under consideration by the major industrial nations, according to a senior official of the International Monetary Fund.

Russia will strive to cut its deficit, now estimated at 17 percent of its total output of goods and services, to 5 percent by year's end, said the official, who requested anonymity. The nation's inflation rate, now running at 15 percent to 20 percent a month, is to be brought significantly below 10 percent a month.

The Russians also have promised to stop subsidizing large but unprofitable factories and enterprises and to increase the pace of changing businesses from government to private management, according to the IMF.

Those commitments are critical to securing $1 billion in loans from the IMF, which in turn will form the centerpiece of a $24 billion economic package of aid from various Western nations, the IMF official said.

An IMF loan is crucial to Russia because it would enhance the credibility of President Boris N. Yeltsin's government as it seeks financial development assistance from around the world.

By imposing strict standards for budget and monetary policies, the IMF provides a fiscally conservative stamp of approval, signaling to other governments and financial markets that a borrower is following prudent economic policies.

The Russian political authorities "support fully" the stringent new economic goals, even if it means some hardships for the population, according to the IMF official, who has conferred with top Russian officials. "They are committed," he said.

The IMF previously indicated that it would approve the $1 billion loan. But the official's comments provided the first details of the specific promises offered by the Russians to get the initial $1 billion loan.

The effort to slash the budget deficit to an amount equal to 5 percent of the national output will require deep cuts in government financial support for businesses that employ large numbers of workers. Those businesses have large stockpiles of products no one wants to buy, said IMF officials.

"In view of the strength of commitments from Russia . . . there are enough assurances to go ahead" with the initial IMF funding, the official said. The initial loan could be approved this summer, he said.

The IMF also is helping to devise new currency arrangements for the independent republics of the former Soviet Union, both for those countries wishing to stay linked with the Russian ruble and others seeking to create new money.

"The ruble can be an anchor for overall stability," for the bloc wishing to stay linked economically, the official said. That bloc, Russia, Belarus, Kazakhstan and Uzbekistan, would have a single central monetary authority, with a strong monetary policy. Presumably, Moscow would set monetary policy for the ruble, expanding and contracting the reserves to help control inflation.

For other nations, the IMF wants to help a "very civilized exit . . . from the ruble zone," the official said. The Ukraine and the Baltic countries of Estonia, Latvia and Lithuania all want to have individual currencies, he said.

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