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. Last Updated: 07/27/2016

IMF Loan: Good Call, With Strings

The board of the International Monetary Fund has signed off, as expected, on a three-year $10.2 billion loan package for Russia, provided it meets a host of strict economic conditions. The first $340 million tranche should arrive in Moscow's accounts within days -- doubtless not a moment too soon from the point of view of President Boris Yeltsin.


Awarding the loan -- the second largest in the Fund's history after last year's Mexico bailout -- was the only politically and economically sensible move the IMF could make at this juncture. Equally, the formula of monthly cash disbursals and close monitoring is the right way to ensure Russia does not take the IMF for a ride, no matter who is in the saddle here after June.


Much has been made of the timing of the loan agreement as Yeltsin kicks off his battle for re-election. The IMF and its political masters in Western capitals chose to proceed at a time when worries about the course of Russian reform have intensified, and as such, the loan is an international vote of confidence in Yeltsin -- as well as an expression of fear at what a Communist victory might bring.


But don't expect Yeltsin to be touting the billions from the IMF on the campaign trail. The Western free-market dogma accompanying the loan is not exactly popular in the Russian provinces these days. Rather, the IMF money -- in tandem with loans from Germany and France -- will provide the government with the latitude it needs to meet its expensive promises to pensioners, students and workers ahead of the June poll.


But to see the IMF decision as pure politics would be wrong. Russia, quite simply, met its broad economic targets in return for last year's $6.5 billion standby loan, producing the financial stabilization the country enjoys now. This IMF loan deal represents money Russia will need to finish the job it has started, and only the coming months will show whether this country's leadership will in fact have the political will to do so. The IMF did not, and should not, prejudge this.


In any case, the IMF's new package is no panacea. It still represents just a fraction of the massive amounts of Western aid that were promised after the collapse of the Soviet Union and is worth less per annum than last year's $6.5 billion standby credit.


The carrot of the IMF money can, however, help keep in line Russia's protectionist tendencies, seen already in the government's retreat from a threat to raise import tariffs. And by maintaining the monthly monitoring of economic performance -- such loans are usually analyzed quarterly -- Moscow, rightly, is still being kept on a short leash.