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. Last Updated: 07/27/2016

IMF: Russia Lags Behind Central Europe

MADRID -- Movement away from the communist system has been less impressive in Russia than in Central Europe, and it will be one or two years before the start of an economic recovery, officials of the International Monetary Fund said Wednesday.


"It's premature to talk of bottoming out in Russia," said Flemming Larsen, senior adviser in the IMF's research department.


He predicted that production would decline again this year and next and that it would take another year, maybe two, before Russia shows the kind of recovery under way in some of the Central European countries that were also under communist rule.


Michael Mussa, the fund's economic counselor, said recovery was beginning in Poland, the Czech Republic, Slovakia, Slovenia and the Baltic states of Lithuania, Latvia and Estonia.


Farther east, he said, results were less impressive -- meaning in Russia, by far the biggest and most populous.


They made their comments at a news conference on the semiannual "World Economic Outlook," which was released in advance of next week's annual meetings of the IMF and its sister agency, the World Bank.


The report predicted that official unemployment would surge in Russia and other countries of the former Soviet Union as they move toward a capitalist economy.


It said higher jobless rates were likely as the nations curb government spending, ease rules on layoffs and adopt other free market measures.


In mid-1994, Russia's jobless figure was only 1.5 percent.


By normal world standards, said the report, it would be 6 percent, with another 6 percent or so on reduced hours or forced leave.


Many jobless Russians fail to register with the authorities because benefits are low and unemployment carries a stigma from communist days, the fund explained.


It found the situation similar in Ukraine, Belarus and many of the countries of the Caucasus and Central Asia, which have been transforming their economies more slowly than such Eastern European nations as Poland and the Czech Republic.


It said that as budgets tighten, old legal restrictions on layoffs disappear, unemployment compensation rises and the countries' economic structures change, "registered unemployment in these countries is likely to increase substantially."


The prediction comes at a time when Western Europe is emerging from recession and the fund is revising its economic projections upward for the first time in a decade.


The fund reported that total production in Russia is still dropping -- by 17 percent in the first half this year compared with the same period in 1993. But for the entire year, it predicted the decline would only be 12 percent, about the same as last year. And for 1995, it predicted a fall of 3.9 percent. The fall in production since the Soviet Union collapsed is now close to 50 percent, the fund reported.


Declines were smaller elsewhere in the former Soviet Union, and the Baltic republics of Latvia, Lithuania and especially Estonia showed increased production, as have some countries in Eastern Europe.


Poland was singled out by the fund as having particularly encouraging prospects "fueled by a dynamic private sector."


The report pointed to enormous difficulties still to be faced in changing from a communist economy: banks and enterprises that cannot pay their debts and need to be restructured or in some cases closed. Little progress has been made in selling off state-owned land. Subsidies, cheap credits and tax exemptions distort the whole business picture.


"Widespread corruption and crime threaten to undermine support for market reforms," the fund warned.


The fund saw some positive signs in Russia.


Exports to the West of oil -- the country's largest source of foreign revenue -- have increased recently and Russia's total trade with the West has been rising steadily. This year and next, the monthly inflation rate is expected to stay below 10 percent -- still a much higher figure than in the West.


Despite often-contradictory new laws, there have been changes.


In 1990, more than half the country's production was in military goods. Now, military goods account for less than one-third of what the country makes.


By the end of this year, more than half of working Russians will be employed by private bosses, rather than the state, the fund predicted.