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. Last Updated: 07/27/2016

Russia Likely to Stick to IMF Terms, Analysts Say

The International Monetary Fund is keeping Russia on a short leash in return for its pledge of $6.3 billion in loans -- and economists Monday said they expected Moscow to keep to heel.


It is "unlikely" that the IMF will be forced to stop monthly payments due to Russia not adopting a tight monetary policy, said one source close to the talks.


Recent measures are not just window-dressing to satisfy the IMF negotiators only to be withdrawn later, analysts said.


"The money won't be stopped because the government has already fulfilled most of its obligations," said Andrei Illarionov of the Institute for Economic Analysis.


"The last few presidential decrees have been aimed at the liquidation of subsidies and special export exemptions. Can you imagine how much work has already been done?" he said.


Furthermore, if Russia abides by the terms of the $6.3 billion loan and is in need of further aid next year for economic reforms, it could be eligible for billions more in IMF assistance.


"There's definitely talk of an extended loan agreement," said the source close to the talks, who declined to be named.


Under terms of the standby loan, the Fund will monitor Russia's macroeconomic indicators, such as hard currency reserves, balance of payments and financing of the budget deficit, currently forecast to account for about 5.6 percent of GDP.


But if the deficit is financed by issuing inflationary Central Bank credits, payments could stop immediately.


"It's quite right of the IMF to take a hard line," said a Western economist, who also declined to be identified. "Conditionality has been attached which is completely justifiable, and it is imperative to adhere to it."


The credit will be disbursed in $500 million monthly installments, after handing out an initial $1.1 billion next month, pending final approval by the IMF board. After that, the Fund will hold monthly reviews of Russia's macroeconomic indicators, and reserves the right to suspend payments.


An IMF team arrived in Moscow two weeks ago to hammer out final details of the loan, which was signed Friday by President Boris Yeltsin and IMF Managing Director Michel Camdessus.


Since the team's arrival, Yeltsin has vetoed a draft law that would have more than doubled the minimum wage -- blowing a hole in the budget deficit -- and issued decrees suspending tax exemptions for "special exporters."


"The main concern is getting the government to stick to its promises," said Illarionov.


One indication that the state will follow the Fund's guidelines is that a consensus seems to have been reached between government and parliament, said one Western banker.


"The government proved that it can work with the Duma and achieve consensus, and the Duma proved it can understand the need to have a stable budget," said the banker, who declined to be named. "The legislature and the government can work together and, at the end of the day, they realize they can't print more money."


Some have said the government will be hard-pressed to rein in spending with parliamentary elections approaching in December.


"The government is under unrelenting pressure to spend, and that pressure will be there through the year," said the economist.


"But I am optimistic that the government, led by [Prime Minister Viktor] Chernomyrdin clearly recognize the pressures. There is a clear political will on their part to adhere to the policies outlined in the agreement."


Analysts say if the government sticks to the austerity regime inflation will drop sharply in coming months, after decreasing to 11 percent in February from a January level of 17.8 percent. The IMF has set quarterly macroeconomic targets, and has said monthly prices should rise by about 2 percent by the end of the year.


Negotiations for the loan also established a strong personal rapport between Chernomyrdin and the IMF managing director, Michel Camdessus.


Chernomyrdin invited Camdessus to his hunting dacha where they drank vodka, shot wild boar and talked about Russian reforms, Reuters reported.


Soon afterward the pair were toasting champagne at the Kremlin to seal agreement on the standby deal.