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. Last Updated: 07/27/2016

IMF Chief Seals $10 Billion Russia Loan

International Monetary Fund head Michel Camdessus agreed Thursday on a long-sought three-year loan worth $10.2 billion, calling it the world's "moral obligation" to support Russian reforms.


"I can tell you that I am confident that with the arrangement, we are supporting an extremely solid strategy for the next three years," Camdessus told a press conference shortly after a Kremlin meeting with President Boris Yeltsin.


Under the agreement, which still must be presented to the IMF board of directors for final approval, Russia would receive $4 billion in 1996, disbursed in equal monthly tranches likely to begin in mid-April, and "front-loaded" installments of the remaining $6.2 billion over the next two years.


The loan deal was sealed after the Russian government conceded to the IMF's demand to abolish controversial oil export tariffs (Story, Page 12), and its announcement gave a spur to domestic stocks and international debt markets.


Yeltsin clearly was counting on the money, telling Interfax "it would be treason for the World Bank and the IMF not to Russia has from both the United States and Germany an understanding that economic instability only plays into the hands of the enemies of reform," one New York-based analyst said.


Western leaders "are not going to walk out on their friend Boris," another market watcher said.


But Camdessus rejected insinuations that the loan was aimed at supporting the current government, calling the three-year package a way to ensure the country's reforms were "truly irreversible."


"Not to support Russia now also could be viewed as taking sides, and would be equally wrong," he said. "It is our ... moral obligation to support this government."


As for the threat of a Communist victory, the fund's chief said he was convinced that a new government would see the realities of the Russian economy and maintain conditions set under the loan agreement. Otherwise, "our support will be interrupted," he said.


Prime Minister Viktor Chernomyrdin hailed the agreement as "evidence of confidence in our policy," Interfax reported, pronouncing himself "very satisfied with the results of today's talks."


Camdessus met later Thursday with State Duma speaker Gennady Seleznyov, who said he was satisfied with the conclusion of the loan deal, but added: "We would like to know the details of the government programs discussed today and wish for greater openness of the process to the Duma," Interfax reported.


The agreement, while long expected by the international markets, nevertheless was the subject of some apprehension when the IMF team failed to conclude negotiations as expected during a January trip to Russia.


Problems arose over last month's dismissal of first deputy prime minister Anatoly Chubais -- Russia's chief negotiator -- and a string of populist spending decrees by Yeltsin that appeared to threaten renewed inflation.


However, with the announcement two weeks ago that Camdessus likely would visit Russia, most analysts accepted the deal as done. The main question appeared to be the size of the loan -- reported to be $9 billion until Central Bank Chairman Sergei Dubinin quoted a figure of $12 billion earlier this week.


Some saw the final figure as a compromise.


"It was a foregone conclusion that it was going to happen," said a Moscow-based investment banker. "But the IMF could have kicked, screamed and dragged its heels at every opportunity, and just given the bottom line -- 9 billion. They didn't do that."


Terms of the loan were not disclosed, but IMF officials say loans of this type generally must be repaid over four to 10 years, at an interest rate below international market rates.


Russia's 1996 federal budget assumed $3 billion in funding from the loan and $2 billion in Eurobond sales expected later this year, the chances of which were unlikely without a successful deal.


The IMF loan also clears the way for debt rescheduling agreements now under negotiation with commercial and government creditors on $110 billion in old Soviet debt. Without the IMF money and loan deal Moscow might have been forced to default on its payments.


International markets for Russian debt rose half a point to 36 cents on the dollar. Russian blue-chips rose in the afternoon as news of the loan was announced.


Camdessus discounted fears that Yeltsin's pre-election promise to provide back wages to all state employees would bust the budget and wreck Russia's economic stabilization, saying IMF scrutiny had determined that "appropriate financing can be secured and we agreed on the pattern that would enable payments."


Payment of back wages has been widely viewed as a political gambit by Yeltsin, who lags far behind Communist candidate Gennady Zyuganov in polls for the June presidential elections.


Camdessus, however, denied that the IMF was helping Yeltsin win re-election by providing the Russian government with money for the budget.


"One of the priorities a government must respect is to pay its debts, and no debt is more sacrosanct than paying its employees," he said.


The credit follows a one-year, $6.5 billion loan awarded to Russia last March for macroeconomic stabilization, the last tranche of which was granted earlier this month.


"The Russians met their '95 economic targets at considerable risk and pain," the New York analyst said.


The new loan, called an Extended Financing Facility, takes a three-pronged approach to reforms: continuation of macroeconomic reforms begun under the earlier credit; institution of structural reforms such as broadening the tax base and reducing evasion; and sectoral reforms in areas such as banking.


The proposal envisions monthly inflation of 1 percent by the end of 1996, with further declines in subsequent years.


Also under the agreement, Russia is expected to reduce its budget deficit as a percent of gross domestic product by 4 percent in 1996, 3 percent in 1997 and 2 percent in 1998. Likewise, real GDP is expected to grow 2 to 4 percent from 1996 to 1997, and 6 percent or more thereafter, Camdessus said.





-- Jonas Bernstein contributed to this report.a