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. Last Updated: 07/27/2016

Economists Back IMF Policy in Russia

LONDON -- The International Monetary Fund's lending policy in eastern Europe, and especially Russia, makes the best of a difficult job without threatening the IMF with imminent collapse, debt analysts said Friday.


The Fund has been at the forefront of efforts to help the former East Bloc communist countries switch to market economies.


But earlier this week, Swiss National Bank president Marcus Lusser warned that the IMF faced ruin unless it started to apply normal conditions for loans to the East Europe and Russia.


"I don't buy that there is great risk in East Europe and Russia. I don't think it's that massive," one economist said.


"Russia is definitely among the biggest borrowers but it is not clear it is a greater risk. Even in the worst Latin American cases it (the IMF) got its money back."


Since 1992, Russia was granted $4.0 billion under three IMF loans, but has failed to meet all its obligations for the first two and there have been doubts raised about its ability to meet obligations under the third.


The IMF, with strong political backing, has offered Russia easier than usual terms for the loans.


However, the two are due soon to negotiate a stand-by loan which carries tougher conditions and which, if agreed, could clear the way for the resumption of talks with Western governments.


Though Russia's debt, as a percentage of exports, is large at 200 percent, it is still below some South American borrowers and others in East Europe such as Poland and Hungary, whose economic transition is generally seen as successful, some analysts noted.


One said it would be wrong to pin too much on the IMF's role. "It isn't an institution builder. It's a source of balance of payments support. The only thing which builds or knocks down institutions is society," he said.


"It's not clear that Russia needs balance of payments finance. What it requires is better policies and long-term financing to support those policies," the analyst said.


The fact that the IMF was looking at a stand-by loan implied it was already tightening its standards.


While Russia still faced huge problems, its economic prospects were generally positive and there had been considerable improvements in recent years, they said.


"It's been a surprise. I was very skeptical (of the IMF's loans). I think the IMF will come out of it well," said one.


Others said there was really little choice and the coercion that might have worked in some East European countries would be a dangerous ploy in Russia.


"There's no other option unless the IMF writes off Russia altogether and that's not going to happen," said one. "Things there are going in the right direction. Overt IMF or G-7 pressure could backfire," he added.