IMF: Communist Course Risks Loan

A $10 billion loan to Russia from the International Monetary Fund deemed vital for meeting the 1996 federal budget would be suspended if June's presidential elections brings to power a government with a "communist approach" to economics, the fund's chief said Wednesday.


"If they are [consistent] with a communist approach, then indeed agreement would be impossible and then we would have to suspend our support," IMF Managing Director Michel Camdessus said in Washington, Reuters reported.


The threat came just one day after the IMF formally agreed to the three-year loan, its second highest credit following a $17.8 billion loan to Mexico last year. The loan is contingent upon Russia maintaining current budgetary and monetary reforms, as well as initiating widespread reforms in areas such as land ownership and banking.


Camdessus' comments are the most explicit yet demonstrating IMF concern about the possibility of change in Russian policies as a result of a communist victory and the fund's intention to see that government country's controversial loans-for-shares scheme last year.


"The program states clearly that the government will not renationalize, or increase the share of the government in privatized companies," said Camdessus, according to The Associated Press.


The terms call for the IMF to monitor compliance monthly before issuing new payments.


Camdessus said the IMF was not playing politics. "The question is what kind of policy the new government would intend to apply," he said, adding, "We will judge the situation in due time."


The size of the loan has appeared to vary over past months -- from $10.2 billion to $10.1 billion -- as IMF credits are denominated in a special unit tied to a basket of five international currencies. As the dollar moves against these currencies, so does the loan's dollar-equivalent.


The loan, to be disbursed in $340 million monthly tranches, is vital for Russia to meet its 1996 budget. That spending plan assumes $3 billion in revenue from the IMF, as well as the successful rescheduling of billions in foreign debt which largely hinges on the IMF agreement. Few doubt that a communist-style economy would violate the terms of a loan based on free-market principles.


Last month when he gave tentative approval in Moscow to the massive credit, Camdessus said he was convinced a communist government would see the realities of the Russian economy and maintain the loan's conditions. Should it do otherwise, "our support will be interrupted," he said at the time.


Analysts have frequently said the IMF loan amounts to indirect support for Yeltsin less than three months before he faces his key opponent, Communist Party leader Gennady Zyuganov in the elections.


Yeltsin is under severe election-year pressure to pay wage arrears and fund social sector improvements, which he promised during a populist spending binge earlier this year.


Adding to the sense of Western support for Yeltsin were $2.7 billion in credits extended by German banks and a further $400 million by French banks earlier this month. Analysts also expect that $38 billion in debts owed to the Paris Club of governmental creditors will be rescheduled before the June election.


Most of the money is owed to Germany, whose Chancellor Helmut Kohl openly supported Yeltsin during a visit in February.


Dirk Damrau, manager of research for the Moscow investment bank Renaissance Capital, said Wednesday, "I think the decision has been made on a political level in Chancellor Kohl's office ... that a comprehensive rescheduling agreement is in the works and is supported by the German government."


Russian officials took the IMF loan as a sign of confidence, with presidential adviser Alexander Livshits stating the fund "believes in our future more than we ourselves do," Interfax reported.


First Deputy Prime Minister Vladimir Kadannikov said, "The extension of such a large credit by such an authoritative international organization opens up opportunities for a more energetic flow of investments."


With the loan's approval, attention is now focused on negotiations for rescheduling $32 billion in debts to the London Club of commercial creditors and the $38 billion owed to the Paris Club.


The IMF called on Russia's creditors to bolster its loan with debt rescheduling agreements.


"It would be expected that IMF support for the medium-term Russian economic strategy through the [loan] would be followed by a comprehensive external debt rescheduling ... that would allow Russia to avoid a cash-flow problem caused by the bunching of debt service obligations between 1996 and 2000," the fund said in a statement accompanying announcement of the loan.


Damrau said "it is convenient" the decision came while the Paris Club is meeting. "It's a very firm statement by the IMF," he said.


Markets for dollar Vneshekonombank notes -- old Soviet debt inherited by Russia and traded similar to emerging market debt bonds -- rose a quarter of a point to 34 1/4 cents to the dollar on news of the loan, Reuters reported. It had risen half a point earlier in the day before slipping.


Talks with the Paris and London clubs have been dragging of late, with the Paris Club debt deal stymied by the club's insistence on a three-year deal mirroring the IMF agreement and to be followed by a comprehensive rescheduling. The Russians want a comprehensive deal from the start.


The London Club deal, which looked all but done late last year when the group's commercial banks signed a preliminary restructuring agreement, has since slowed to a crawl after the Russians balked at some of the terms, according to a source close to the negotiations.


A meeting between the two parties scheduled for mid-March was cancelled, and a draft document outlining terms scheduled to be presented next Wednesday will probably be delayed.