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. Last Updated: 07/27/2016

World Bank Readies $1 Billion in Loans for Russia

The World Bank is putting the finishing touches on nearly $1 billion in loans for Russia to help the country modernize its battered economy, diplomats have said. The loans mark the culmination of months of talks and are the latest in a series of steps spearheaded by the United States to aid its former Communist foe. The World Bank plans "to go ahead with four more loans for Russia," one diplomat, who declined to be identified, said in Washington on Tuesday. The loans include $500 million for the key oil and gas sector, $200 million to help Russian firms restructure their operations and two credits totaling about $275 million for the country's farmers. Agreements have also been reached on a separate $600 million rehabilitation loan, which will be used by Russia to pay for imports and balance its budget. World Bank officials in Moscow expect the loan to be submitted to the board by July. As part of the agreement, Russia has agreed to make certain changes in economic policy but officials have refused to disclose the measures until the loan is signed. Sergei Vasilyev, a head of the government Center for Economic Reforms, said Tuesday the measures would not involve new taxes but rather "structural changes." He refused to elaborate. The other loans are expected to be signed in Washington next week by visiting Russian Prime Minister Viktor Chernomyrdin who will hold talks with Vice President Al Gore on increased economic ties between Washington and Moscow. However, the status of the oil loan is unclear. The World Bank has been pushing for Russia to pass a broad exemption for the oil industry or other industries from paying the 23 percent value-added tax on its imports of equipment. President Boris Yeltsin, however, responded last week with a decree that exempts only equipment bought with international government credits and loans from international financial institutions such as the World Bank and the European Bank for Reconstruction and Development. The World Bank has repeatedly said it did not want a special exemption and officials have said that the issue is a serious stumbling block in negotiations over the new oil and gas loan and release of funds from a $610 million loan to the oil sector approved last year. In addition, the World Bank is also lobbying for exemption from customs duties for imports of oil equipment under the first loan, since the customs duties did not exist when the loan was signed. Bank officials said they want to use the loans as leverage to force the government to abide by its commitment not to change tax regimes for foreign investors and Russian companies in midstream. Meanwhile, U.S. administration officials said the U.S. government-funded Export-Import Bank is discussing a big loan package with Russia's giant gas company, Gazprom, although it is unclear whether, or when, the deal will be clinched. Treasury Secretary Lloyd Bentsen said that aid to Russia and the other former Soviet states will be on the agenda when President Clinton meets leaders of America's industrial nation allies at a summit in Italy next month. Russian President Boris Yeltsin is expected to attend part of that meeting, to be held in Naples on July 8-10. "What more we can do for Russia and the former Soviet republics" would be under discussion, Bentsen told reporters. He said he was pleased by efforts by Chernomyrdin and Russia's Central Bank to bring down inflation. "They've made good progress," Bentsen said, but he added that "they have to get it down some more." Russian inflation, which at one point last year was close to 30 percent per month, is now running at a monthly rate of below 10 percent. Much to the surprise of some of his arch-reformist critics, Chernomyrdin has been able to bring down inflation through a combination of higher interest rates and a tightened government budget. (MT, Reuters)