Billions in IMF Aid on the Line

The fate of international aid to Russia hung in the balance Wednesday as a top-level International Monetary Fund delegation arrived for a crucial round of talks that could release as much as $12 billion to finance the country's transition to a market economy.

The delegation is looking for answers to two tough questions: To what extent has the Russian economy achieved macroeconomic stabilization over the last year, and how realistic are the government's plans to achieve financial stabilization next year?

"The question is, what stabilization are they (Russia) able to deliver?" said Charles Blitzer, chief economist with the World Bank. "Based on the answer, they (the IMF) can make decisions as to whether the program is supportable -- and by how much it is supportable."

The government's austere draft budget for 1995 envisages reducing the budget deficit to 7.8 percent of gross domestic product and slashing monthly inflation to less than 2 percent by the end of the year in order to achieve financial stabilization as a precursor to growth the following year.

But the document has come under fire from all sides in the State Duma, and Wednesday a newly created committee of government and parliamentary representatives began to discuss changes to the government's draft before a Dec. 10 deadline.

At a special meeting of the nation's economic decision-making elite Saturday, however, Prime Minister Viktor Chernomyrdin said that while the allocation of state expenditures was negotiable, the size of the budget deficit and the methods of financing it were not.

IMF sources have also voiced skepticism about the government's ability to raise its planned revenues from taxation and treasury bills. The delegation will take a close look at Russia's economic progress this year in order to help it judge the government's projections.

Under targets agreed with the IMF in April, Russia must achieve a budget deficit of under 7.5 percent, and monthly inflation of less than 7 percent, by the end of this year, but it is by no means clear that it will be able to do this.

While inflation fell to 4 percent in August, it shot up again to 15 percent in October and in the first week of November alone prices rose by 4.2 percent. The budget deficit is likely to come in at around 10 percent, economists say.

At issue is the release of up to $6 billion in a standby loan from the IMF, plus a further $6 billion currency stabilization fund that would tie the ruble to a major Western currency.

Russia has already received $3 billion from the IMF's Special Transformation Facility, which was designed to help the countries of Eastern Europe move quickly from communism to capitalism.

But a standby loan, which is released in tranches according to the progress made by an economy, is monitored and administered more strictly.

Russia also stands to receive up to $3 billion from the World Bank next year. But while some of this money would be used to finance budget expenditure and would be linked to the provision of a standby loan from the IMF, funding for specific projects will be awarded separately, according to the merits of each.

The World Bank earlier this month approved a $110 million loan earmarked for environmental projects.