Russia Expected to Win IMF Deal Next Week

Prime Minister Yevgeny Primakov is likely to clinch some sort of deal with the International Monetary Fund when he visits Washington next week, but any new IMF loans will probably not be released before May at the earliest.

Primakov met Friday with an IMF mission that was wrapping up preliminary talks in Moscow ahead of the prime minister's trip to Washington. Primakov is due to leave on Monday for meetings with U.S. President Bill Clinton, IMF head Michel Camdessus and other high-ranking officials.

"There will be an agreement, there is no alternative to that," First Deputy Prime Minister Yury Maslyukov said Friday after the talks, according to Russian news reports.

On Friday, Central Bank chairman Viktor Gerashchenko added urgency to the country's pleas for cash when he said that the nation's hard currency reserves were likely to hit $10 billion by the end of the month, a major drop from the latest official figure, which put the reserves at $11.4 billion as of March 12.

Considering that about $4 billion of the $10 billion figure is in gold reserves, that would leave Russia with enough cash to cover only two months' worth of imports at most.

"Such a low level of reserves would certainly provide pressure for Russia to print money, putting an end to what has been a surprisingly tight monetary regime in recent months," said Peter Westin, an economist at the Russian European Center for Economic Policy.

Gerashchenko said reserves were mostly being spent on servicing foreign debts, not on supporting the ruble. The bank had spent only $250 million defending the currency in February, he said

But despite the pressing need for a cash injection now, analysts said that a signed agreement was unlikely before mid-April and that IMF money would probably not be released any earlier than mid-May.

Russia can probably hang on without new IMF loans until June. Although $17.5 billion of Russian debt matures this year, the monthly burden is comparatively light until July, when about $1 billion of the $4.8 billion IMF bailout granted 12 months earlier falls due.

Although IMF officials have declined to comment on the talks, analysts said Friday that the institution's stance had definitely softened in recent days, as both sides moved toward finding a workable middle ground. "My reading of the tea leaves is - yes, there will be a deal and sooner rather than later," said Charles Blitzer, chief international economist at Donaldson, Lufkin & Jenrette in London.

The IMF has reportedly withdrawn a demand for increasing the Russian budget's 1999 primary surplus before debt servicing to 3.5 percent of gross domestic product - an issue that had been a major sticking point in talks so far. Several Russian officials - including Maslyukov, Russia's chief negotiator for the talks - had protested that such a move would worsen Russia's expected economic contraction this year. The IMF's World Economic Outlook has predicted Russia's GDP will contract by 8.3 percent in 1999.

The IMF's other major demand has been to delay a proposed cut in value-added tax - fearing that the reduction in one of the easiest taxes to collect will undermine budget revenues.

Analysts said that the easing of the IMF's demands on the deficit and an expected presidential veto on the VAT cut, showed that the two sides were moving toward agreement.

"It seems to be that both sides are compromising enough to get a program agreed by next week," said Roland Nash, an economist at MFK Renaissance.

But the IMF will almost certainly insist on Russia signing up to a deal that requires Russia to complete reforms before loans are released.

"In the past, the IMF released the loans first under programs that required Russia to then carry out reforms, this new program will make it so Russia has to perform before they get any money," Nash said.

The IMF wants to avoid a repeat of the events of last summer, when a huge flow of dollars left Russia immediately after the monetary fund's cash was delivered to the Russian Central Bank as investors apparently capitalized on the bank's defense of the ruble to get out before the ruble was permitted to collapse on Aug. 17.

U.S. Treasury Secretary Robert Rubin addressed the issue Thursday telling that he suspected that much of the $4.8 billion in loans sent to Russia last summer by the IMF "may have been siphoned off improperly." It was the Clinton administration's first public statement supporting accusations that bailout money simply helped wealthy Russian oligarchs move billions of dollars to Switzerland and other safe havens. Even without cash up front, Russia desperately needs to get an IMF deal signed so as to free up more than $1 billion worth of other loans that cannot be disbursed without an IMF agreement.

The World Bank has already released a $400 million road loan this year, but a further $600 million in agreed loans will come only after a deal is reached.

Russia and the bank are also reportedly near to agreeing terms for the resumption of a $1.5 billion structural adjustment loan offered by the World Bank last summer. Only $300 million of that credit was released before the crisis struck.

Considering Russia's recent history, several economists were skeptical Friday that any new IMF program could lift Russia out of the mire.

"It is not going to make much difference," Blitzer said. These problems need to be solved at home, not by papering over the cracks with foreign loans."

The biggest single problem was capital flight, which was still running at $1 billion to $2 billion a month, he said.