$1Bln World Bank Loan Possible by July

While the majority of analysts have written off the possibility of Russia receiving foreign loans this year, the World Bank apparently has not.

Andrei Bugrov, World Bank director for Russia, said Sunday that work on the World Bank?€™s fourth structural adjustment loan, which could total $1 billion, "is halfway completed" and that "the ball is in the government?€™s court."

In preparation for the expected arrival Tuesday of the next IMF mission, the Finance Ministry has reassessed its sources of income and cut $3 billion worth of loans from the budget as unrealistic, including those from the International Monetary Fund, World Bank and Japan?€™s Eximbank.

Last week, however, the World Bank?€™s executive director for Russia, Julian Schweitzer, announced that the parties were building a new mechanism for assessing the course of reform. In saying this, he left the door open for the fourth structural adjustment loan, or SAL-4.

SAL category credits go directly into the federal budget and are earmarked for specific issues ?€” reforming the pension system, for example. They also have a number of conditions attached.

The World Bank?€™s first such loan was for $600 million and it was released in 1997. The $800 million SAL-2 was released in 1998. And of the $1.5 billion SAL-3 loan, a tranche of $400 million was issued in 1999, it was closed last September at Russia?€™s request after it failed to make required reforms in the banking and natural monopolies sectors.

SAL-4 was christened the "Christmas Tree" because it came loaded with conditions, which German Gref?€™s Economic Development and Trade Ministry has been working on for five months.

Gref adviser Arkady Dvorkovich said three groups of figures are being used to determine if Russia qualifies for the loan. The first shows the level of market competition, the second the extent to which the economy has been deregulated and the third shows the extent of social security reform. "Essentially [the ministry and the World Bank] agreed on the first two groups, with the exception of some technical details," said Dvorkovich.

For the third group, the extent to which the government subsidizes the economy, Dvorkovich said his team needs about a month to work out the indicators.

Structural loans are considered a "budget substitute" and are integrated into the general economic program of the government and the Central Bank. In other words, they need IMF approval, and relations with the Fund are far from smooth, mainly due to debt-servicing problems.

If a framework agreement with the IMF can be worked out by March, the official loan application could reach World Bank headquarters by June. Normally such applications are considered for a month, so the bank?€™s board of directors could be looking at it in July.

Bugrov said the value of the credit hasn?€™t been discussed yet, but one government official close to the talks said it would be no less than $1.1 billion ?€” exactly what the government failed to get out of SAL-3. He said that the amount of the loan is of secondary importance to the positive image that would be generated from the approval of the loan.

"Even if the World Bank no longer releases budget-substituting loans, the system of [reform indicators] will be very useful for Russia itself," Schweitzer said.