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. Last Updated: 07/27/2016

IMF Loan Gives Boost to Yeltsin's Pre-Poll Largess

The approval of a $10.2 billion loan to Russia from the International Monetary Fund provides an economic and political shot in the arm for Boris Yeltsin ahead of the June presidential election, analysts said Friday.


An extra fillip finalized in the closing stages of negotiations grants Russia $4 billion in 1996 instead of the $3.3 billion it had budgeted, giving the government extra flexibility in delivering on populist promises it has made for social spending and payment of back wages.


"Clearly Yeltsin, to boost his election, is going to spend more money," said James Lister-Cheese, an analyst with the Independent Strategy firm in London. "And [the extra $700 million] is the money that's going to be spent in the first half of the year."


But one day after announcing the long-awaited loan agreement -- which still must be approved by the IMF board of directors -- fund chief Michel Camdessus rejected suggestions that the credit was a political move or that the money would be unwisely spent.


"I am not here ... to buy votes for President Yeltsin," Camdessus said at a press conference Friday. "We are contributing to the overall financing of Russia today."


While IMF negotiators had been concerned over recent presidential spending pledges -- $12 billion at some estimates for wage arrears, increased pensions, student grants and rebuilding Chechnya -- Camdessus said scrutiny had determined "appropriate financing can be secured and we agreed on the pattern that would enable payments."


"Those who tell me, 'You are funding Chechnya' -- in some ways, yes, because we are financing Russia," he said.


Camdessus added that moral judgments of Moscow were not the responsibility of his organization. "But if the IMF does not lend its [economic] support ... do you think this will shorten the war by just one day? No."


Strict monthly monitoring would ensure that economic targets would be met or else the money would be cut off, he said.


Still, with Russia due to receive up to $600 million by the June elections, and as much as $1.2 billion by election run-offs anticipated for mid-July, the government has gained some breathing room.


Finance Ministry officials have been throwing up their hands over how to cut spending to pay the country's estimated 20.4 trillion rubles ($4.2 billion) in salary arrears.


"The fact that the EFF program has been achieved should allow them to do that with greater ease," said one Western analyst, who asked not to be identified.


The analyst added that the loan provides economic and political support to the incumbent government, saying: "Clearly the [financial stabilization] policies are being carried out by a certain set of people."


Yeltsin "has a kind of free hand to promise more social spending and a more favorable climate to deal with the social pains of the reforms ... but without the danger of blowing the budget," Lister-Cheese of Independent Strategy said.


Exactly how the loan will be used is open to question, as the funds are not slated for specific line-items.


But one IMF official said the money is expected to go toward strengthening the country's monetary position rather than the filling the budget.


"To the extent that they're going to be receiving more now in '96 than they had thought, presumably they would use it in some combination of building up reserves or using it in terms of financing other sources," such as state treasury bills, the official said.


Yeltsin's opponents in the forthcoming elections met news of the multibillion-dollar credits with a lukewarm response.


Communist Party member Viktor Ilyukhin described the continued growth of Russian debt as a noose tightening around his country's neck, Reuters reported.


The party's presidential candidate, Gennady Zyuganov, was more cautious.


"If this money is spent on the development of technologies of the future, we will support that," he said. "If this money is spent on war, goes to corrupt officials, is spent on the further destruction of state institutions, that is another matter."


Irrespective of the politics surrounding the IMF loan, foreign businessmen said that winning the credits would ease the concerns of businesses still sitting in the wings, waiting to invest in Russia.


"I think the elections are still the major issue, but on the other hand, had [the loan] not taken place, it would have been a significant negative," said Tim Frost, president of Pioneer First Voucher fund.


"It would have been one of those things that would have kept [potential investors] on the sidelines," Frost said.


In addition to providing direct financing for the budget, the move is likely to pave the way for the rescheduling of $110 billion in debt incurred during the Soviet regime and Russia's emergence on the international Eurobond market.