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. Last Updated: 07/27/2016

IMF Wants Deep Russian Budget Cuts

Senior IMF officials have criticized the Russian government for not doing enough to fight inflation and urged strict budget cuts which could unlock billions of dollars in new funds.


The IMF officials, including top Russia experts such as John Odling-Smee and Ernesto Hernandez-Cata, also voiced concerns at a seminar this week that the government was counting too much on external financing.


"Until a cap is put on spending, there is no hope of containing the budgetary situation. That needs to be demonstrated by the government," IMF chief economist Michael Mussa told the seminar.


An IMF team arrived in Moscow this week for talks on a $4.1 billion standby loan which could also unlock a $6 billion stabilization fund to help counter attacks on the ruble.


The IMF's judgement on Russia is crucial because it has played a leading role in helping to guide the country's reform efforts. It has already lent Russia $3 billion and further loans depend on government commitments to tight monetary and fiscal policies.


The Fund's visit comes at a critical time for Russia, in the wake of last week's ruble debacle when the currency lost more than a quarter of its value against the dollar in a single day.


The ruble has since rebounded on Central Bank support. But the crisis has claimed the scalp of the influential central bank chief, Viktor Gerashchenko, and Acting Finance Minister Sergei Dubinin.


IMF director Odling-Smee said the Fund's position on Russia had not changed. He said the IMF wanted to assist Russian efforts to speed up reforms but had yet to study the draft 1995 budget and government plans to fight inflation, which rose to 7.7 percent a month in September from August's 4 percent.


"The position we have taken and we continue to take hasn't changed," Odling-Smee said. "We would like to support an intensification of reform in Russia with a standby arrangement."


He voiced concern about the sustainability of Russia's budgetary policies at a time when the government faced pressure from agricultural and industrial lobbies to relax the purse strings.


"It is not the moment to take the easy line and to give way to pressure from industries," Odling-Smee said. "This is the moment to try to get things under much better control."


Economics Minister Alexander Shokhin says Russia wants to stop using Central Bank credits to fund its budget gap, but has urged the IMF to do its share by releasing funds to Moscow.


Odling-Smee warned against reliance on external funds. "My concern is more about the very large amount of financing expected from elsewhere. I don't think all that money will be available and I certainly don't think it'll be good for Russia."


The IMF experts also criticized the government's heavy-handed approach during the ruble crisis.


Yeltsin has ordered top officials from the Federal Counterintelligence Service to investigate why the ruble fell. One scared Russian banker compared the move to a communist-style purge against bankers, similar to one ordered by Soviet dictator Josef Stalin against doctors.


Top Russian officials have also blamed Yeltsin's opponents for staging an attempted financial coup to topple the cabinet.


"Calling the police or firing the Central Bank chief and finance minister does not help very much. Staying calm is important," Hernandez-Cata told the seminar, which brought together IMF and World Bank officials and Russian academics.


"Perhaps many of you believe a financial coup took place, but personally I think the role of conspirators didn't determine what happened last week," he said. "The real culprit is a budget that is too large to require excessive Central Bank financing and foreign exchange reserves."