"Chechnya possibly represents a danger to economic reform," said a U.S. official, who declined to be identified. "The longer it goes on, the more expensive it will be."
Russia is counting on the $6.25 billion IMF loan to serve as the linchpin of its efforts to slash inflation and put its battered economy back on track.
But the IMF help is predicated on Moscow taking tough action to staunch government red ink -- and that will be increasingly difficult to do if the Chechnya conflict blows a hole in the Russian budget.
Alexander Livshits, President Boris Yeltsin's top economic adviser, told Ostankino television in Moscow on Monday that the cost of the Chechen conflict, even if it dragged on for a while, would not exceed 5 trillion rubles ($1.4 billion) in 1995.
Other estimates on the cost of the military operation range up to $4 billion.
"It is about 2 percent of the expenditure of the federal budget," said Livshits. "It is a lot, but not enough to bring about an economic catastrophe."
In comments clearly aimed at calming concern at home and abroad, he said that the crisis, though it had pushed Russia's fledgling financial markets to the brink of panic, would not damage Russia's finances dramatically.
U.S. officials said that for the moment, they believe the economic reformers in the government have the upper hand. "We are confident the reformers still have the ascendancy in economics," said one official, who also declined to be identified.
That confidence was buttressed by news last week that reformers had won a victory in a bitter battle with hardliners over plans to scrap oil export quotas and licenses.
U.S. and World Bank officials cautiously welcomed the news. But they said the Bank would want to see the fine print of the new, more liberal oil export regime and how it works in practice before resuming lending to Russia's energy industry.
This will be the third time an IMF mission has gone to Moscow in the last three months for negotiations on the $6.25 billion "standby" loan. The IMF has already lent Russia $4 billion.
International monetary sources said the two sides had narrowed their differences over the budget in talks last month.
But that was before the Chechnya conflict.
"Thanks to Chechnya,
we're back to square one," a monetary source in Moscow said.
The United States in the past has often pressured the IMF to help Russia. But U.S. officials said that is not happening now -- not surprising given Washington's concern about Chechnya and the mounting civilian casualties there.
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