IMF Back For Fresh Reform Checkup

An International Monetary Fund team arrived in Moscow on Tuesday to evaluate the government's monetary policy and structural reform program and make recommendations on the future of Russia's stalled $10 billion loan.


With President Boris Yeltsin's latest illness casting questions over the pace of reforms, analysts say the government will need to push through radical changes in areas such as privatization and deregulation to prove it deserves the money.


The IMF team arrived as the government announced it might threaten metals giant Norilsk Nickel with bankruptcy if it does not settle more than 500 billion rubles ($89 million) in tax arrears. Widespread tax delinquency led the fund twice to suspend loan payments last year.


Thomas Wolf, the IMF's chief representative in Moscow, said the team that arrived Tuesday will meet Russian officials to discuss a detailed economic program and work out a precise schedule of structural reforms for 1997. The mission will also examine the country's performance at the end of last year and early this month, Wolf said.


"The idea is to move these discussions along as far as possible," he said, adding that the delegation would stay in Moscow through the end of this week. Talks on this year's program advanced "quite a bit" during the last mission's visit in December, he said.


An IMF spokeswoman in Washington said the team's assessment "will either make or pave the way" for a decision of the fund's board on whether to release two delayed loan disbursements worth about $340 million each. The spokeswoman did not say when the board might consider the Russian loan.


A final agreement on the 1997 program is unlikely to be signed before the end of January, with the IMF wanting to see Russia's budget figures set in stone. The State Duma is scheduled to give the spending plan, held up last year as deputies demanded increased social and investment spending, final approval Jan. 24.


"It's realistic to say that it would be difficult to complete negotiations without the budget having been approved," Wolf said.


The IMF program also could be delayed by complications with Yeltsin's health. Doctors said Tuesday that the president's condition has improved, but he remains hospitalized with pneumonia and is not expected back at work before February.


Economists say they believe Yeltsin's death or prolonged absence from the Kremlin could lead to a power vacuum in the government that would cause the IMF to demand renewed assurances of Russia's political commitment at the highest level.


Roland Nash, chief economist at Renaissance Capital investment bank, said that while it has become apparent Yeltsin's presence was not essential to running the government, reforms have stalled without strong leadership.


"I think the reason why they are moving more slowly is because they're not quite as sure about the direction in which they should be moving as they were in the past," Nash said.


Reform of the tax system, use of bankruptcy procedures against inefficient companies and overhaul of the banking system are the three biggest outstanding issues, he said.


"Hopefully what will happen is that the IMF will sit down with the government and say, 'Look, this is what you need to do, and these are the reasons why you have to do it. We know that you do have the power to push through the reforms -- then go and do it,'" Nash said.


Yeltsin's constitutional second, Prime Minister Viktor Chernomyrdin, is widely regarded in the West as a solid reformer, but his ability to implement fully a reformist program without Yeltsin's active backing is questioned.


Other concerns include a covert struggle over the direction and pace of reforms between two large government camps headed by Chernomyrdin's top two deputies -- liberal Vladimir Potanin and conservative Alexei Bolshakov.


Deputy Finance Minister Oleg Vyugin, however, said Tuesday there is a "consensus" in the government. "Everybody knows what their role is in carrying out economic policy. Now the issue is how good that policy will be," Interfax quoted him as saying.


Potanin, who came to his post in the government after heading financial heavyweight Uneximbank, on Tuesday pointed the finger at Norilsk Nickel for its outstanding debts to the government. Uneximbank acquired a controlling stake in the Arctic metals firm from the state last year.


A government commission on nonpayments will consider the case of Norilsk on Friday, news reports quoted Potanin as saying. Norilsk shares slid more than 9 percent, to $5.73, on Moscow's over-the-counter market Tuesday.


One possible solution to Norilsk's debts is a new stock issue, a strategy applied late last year to another troubled industrial giant, AvtoVAZ. But the nonpayments body also could decide to pass the question to the Yeltsin-appointed emergency tax commission, which could initiate bankruptcy proceedings.


Norilsk spokesman Sergei Vetchinin said managers appointed by Uneximbank last spring have designed a program to turn the company around, but haven't yet had time to see results.


"You can't expect miracles in six months, especially in a country mired in crisis," he said.


Prods from the government, however, often are too delicate to achieve much effect, analysts said.


"They are trying to move forward with these reforms, but they're losing credibility on them now," Nash said. Recent threats to sack managers by bankrupting enterprises have resulted in "some improvement, but not at the speed that is necessary for the Russian economy," he said.