Russia Resists IMF Pressure

Russia has held out against pressure from the International Monetary Fund to speed up economic reform, predicting only a gradual decrease in inflation and highlighting political problems in cutting the budget deficit.


"There is not a technical problem in cutting expenditure, but there is a political problem," Russia's deputy economics minister, Sergei Vasilyev, told a World Bank seminar in Madrid on Sunday.


He said it would take two or three years to bring annual inflation down to 20 or 30 percent because of the high spending needed to support farms, mines and the military.


Western officials at the World Economic Development Conference praised Russian reforms, but called on Moscow to accelerate them and bring inflation sharply down. Faster and deeper reform could unlock $4 billion in IMF loans, they said.


"We believe the best thing for Russia is to bring inflation down to levels at which it would stop being a serious economic disruption, and that means to the levels prevailing in Western industrial countries," said Ernesto Hernandez-Cata, one of the IMF's top experts on Russia.


Inflation hit 7.7 percent in September, almost twice the August rate.


A banking expert in Moscow called it a "miracle" that Russia has held inflation at recent levels and that "very drastic policy measures" are needed to further control it.


"The miracle is over," the expert said. "It's time to sink or swim."


But Charles Blitzer, chief economist at the World Bank in Moscow, noted that inflation is not as high as it was a year ago when "there was real criticism that the government was losing control."


In Madrid, discussion of loans for Russia came as poorer nations grouped together to prevent the IMF from issuing greater aid to the Eastern bloc. The Group of Seven leading industrialized nations -- the United States, Japan, Britain, France, Germany, Italy and Canada -- had wanted the IMF in Madrid to step up already significant support to Russia and the other former Soviet republics.


But the G-7 could not rally an 85 percent vote in favor by IMF member nations.


The IMF expects Russia's annual inflation rate to hit 336 percent this year, way down from 915 percent in 1993.


"A remarkable transformation is under way in Russia," U.S. Treasury Secretary Lloyd Bentsen told the Interim Committee of the IMF, listing price liberalization, privatization and the recent fall in monthly inflation as Moscow's key achievements.


But he added: "Russia's gains are not secure. Inflation is too high. The budget is under pressure. Enterprise arrears loom large. Taxes are too high."


Acting Finance Minister Sergei Dubinin said Russia and the IMF are discussing a radical program aimed at bringing inflation down to one percent a month by the second quarter of next year.


But this would demand big changes to government spending plans, larger issues of government securities and new loans from the IMF and the World Bank, he said.


Meantime, the former Soviet republic of Estonia says it does not need all the money on offer from the IMF.


"Some countries seem not to consider that loans have to be repaid,'' Estonian Finance Minister Andres Lipstok said Monday. "We do not want money we cannot repay."


Estonia has yet to use all the loans being offered by the IMF, including a fund set up to help countries of Eastern Europe change from communism to capitalism, Lipstok said.


He said the Estonian economy had finally managed to shake off recession and he expected gross domestic product to grow around six percent this year and next. (MT, Reuters)