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. Last Updated: 07/27/2016

Russia Assures Lenders Stabilization on Track

Russia's economic policy chiefs fought back Friday to assure international lenders and foreign investors that the economy is still on track for stabilization in 1995 and deserves the West's financial support.


The move comes as an IMF delegation is due to arrive Monday for talks on a key $6.4 billion loan, and as Western fears have grown that political instability in Russia could beget economic anarchy this year as the cost of war in Chechnya appears to have spiraled upward.


More worrying than overspending on the Chechnya campaign have been signs of a conservative shift in economic policy, spearheaded by new privatization minister Vladimir Polevanov, who has called for the renationalization of privatized industries and has banned foreigners from the State Property Committee premises, apparently with impunity.


But on Friday, First Deputy Prime Minister Anatoly Chubais -- who has overall responsibility for economic policy -- bounced back with a fierce attack on Polevanov, whom he said had broken cabinet discipline.


"A series of statements by Polevanov have contradicted existing legislation, the privatization program and presidential decrees," Chubais said in the Saturday edition of the Moscow daily Izvestia.


"They reflect his point of view, which he has passed off as an official position."


Prime Minister Viktor Chernomyrdin on Thursday made Polevanov directly accountable to Chubais, he added.


Political analysts have linked Polevanov to a hard-line "party of war" that has won the ear of President Boris Yeltsin in recent months. The influence of this group, however, appears to have waned over the past few days, analysts say.


Convincing Western creditors that the reform program is back on track is crucial as Russia is to receive some $12.7 billion in loans to bridge a budget deficit projected at 7.7 percent of gross domestic product. Without expected Western support, government analysts estimate monthly inflation of 30 percent by the year's end, plus an exchange rate of 15,000 rubles to the dollar and twice the expected decline in real GDP.


President Boris Yeltsin's top economics adviser, Alexander Livshits, told reporters Thursday that he was sure the West would not renege on the loans.


"To do that would mean destroying what took three or four years of careful work," he said. "It would be a grave mistake."


Chubais also pointed to a government decree liberalizing oil exports, which he said would raise an extra 15 trillion rubles in revenue this year, as evidence of Russia's commitment to reform. The IMF and World Bank had pressed Russia hard to make this key commitment.


But Western officials are still worried that the cost of the Chechen conflict will render Russia's relatively tight draft budget for 1995 untenable. Independent estimates of the cost of the war have reached as high as 15 trillion rubles ($4 billion).


Economics Minister Yevgeny Yasin on Friday, however, stated that while the budget is currently being revised to take spending on Chechnya into account, the size of the budget deficit would under no circumstances be increased.


"We're not going to change course on that," he told the newspaper Trud.


Yasin's deputy, Yakov Urinson, told Interfax on Friday that the costs of the military campaign could be borne by present budget allocations, while reconstruction on the wrecked Chechen economy would run to 2.3 trillion rubles, plus 750 million to 800 million rubles for rebuilding the oil industry.


According to Itar-Tass, Urinson also said that monthly inflation could be reduced to an average of 5 percent to 7 percent in the second and third quarters of the year, followed by 2 percent to 3 percent in the fourth quarter of the year. Inflation hit an 11-month high of 16.4 percent in December. Yasin said inflationary fears caused by Chechnya and the "Black Tuesday" crash of the ruble were "90 percent" to blame for the upward trend in prices.


The monthly increase in the money supply had been held to 4 percent in October and November and to 6 percent in December, despite much higher levels of monthly inflation, he said.


Changes in money supply take three or four months to affect the inflation rate.


"In the coming months the government and the Central Bank intend to keep the rate of money supply low," Yasin said.