World Bank Gives Russia High Marks

World Bank President James Wolfensohn emerged from a meeting with President Boris Yeltsin on Thursday with an upbeat report of the bank's relations with Russia and declared many of the obstacles which have hindered lending efforts to be solved.

Despite the approaching presidential polls in June, however, the conversation steered clear of politics and the possibility of a Communist win, the 62-year-old Australian financier said.

"Not surprisingly, I did not speak with the president about a Communist victory," Wolfensohn told reporters. "I got the distinct impression from the president that there would be a Yeltsin victory, and I did not seek to disabuse him of that prospect."

Wolfensohn added that the bank would continue to work with Russia under a new government depending on the country's policies, and has no plan in case of a Communist victory.

"We deal with over 100 countries," he said. "If I were to speculate as to what we would do in each of these countries under a different government, I would be taking a lot of my time and losing a lot of nervous energy."

His comments were more measured than statements from the International Monetary Fund, which has threatened to suspend its three-year, $10-billion loan approved in March if a new government follows a "communist approach" or if Russia's reforms go off track.

Wolfensohn arrived Wednesday and met with Prime Minister Viktor Chernomyrdin and First Deputy Prime Minister Vladimir Kadannikov. The visit was highlighted by the signing of a $350 million loan to rebuild bridges throughout Russia.

Also, the World Bank and Russia agreed in principle on a pair of loans totaling $525 million to restructure the country's shattered coal industry, with an emphasis on easing the tremendous social burden which is likely to result.

The bank will have committed a total of $6.5 billion to Russia for 28 projects by the end of June, he said.

Wolfensohn said he was confident the coal industry loan would be approved by the bank's board of directors during a vote scheduled for the end of June -- after the presidential election.

A nationwide miners' strike in late January was brought to an end when the government promised to pay trillions of rubles in back wages, expecting the World Bank loan to come through.

Wolfensohn stressed that problems which have severely restricted the free flow of bank loans throughout Russia have largely been solved.

Of $4.9 billion in loans approved for Russia since 1993, only $1.6 billion has actually been spent, officials have said. Excluding two large macroeconomic loans totalling $1.2 billion, only 10 percent of the bank's Russia portfolio has been implemented.

Obstacles cited in the past include an unpredictable tax system, unfamiliarity with competitive bidding processes and difficulties getting funds through the federal system to local officials. The bank's response has been to monitor projects more closely and directly, he said.

"The result over six months has really been quite dramatic," Wolfensohn said. "We have, I think, made great progress in terms of every single project in which we're engaged."

The bank president had promised Chernomyrdin last October that he would return to Russia in the spring to evaluate the progress of loan projects.

In the case of the coal industry loan, Wolfensohn said about 70 percent of funds will be disbursed through the localities. Russian officials have agreed to target government subsidies toward compensation to miners instead of maintaining inefficient enterprises.

According to World Bank reports, reforming the coal industry will result in the loss of half of the sector's 471,000 jobs, and in February, Fuel and Energy Minister Yury Shafranik told the State Duma that about 140 of the country's 240 mines will be closed, at an estimated cost of $17 million to $25 million each.

Also in the energy sector, the World Bank may put up $500 million in loan guarantees to Amoco Corp. for an oil production-sharing deal with Russia's Yukos, Wolfensohn said.

World Bank officials are also developing a $500 million loan for restructuring the agricultural industry, but Wolfensohn said the bank must see a government land policy before finalizing the deal. The Duma passed a land code Wednesday that would reverse key provisions of Yeltsin's recent decree legalizing the sale of agricultural land. It is considered unlikely that the president will sign the bill into law.

Wolfensohn gave the Russian economy strong marks, but noted that the budget deficit was still a concern, as well as the elections.

"The statistics look very good. GNP is growing, inflation is down. You have a problem of budget imbalance that everyone is worrying about, but I'm quite impressed on the macro side," he said. "The real question at the moment is the political one."