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. Last Updated: 07/27/2016

IMF Must Rebuild Its Credibility

The International Monetary Fund's handling of its $10 billion loan to Russia has up until this week had more to do with politics than economics.


When the IMF agreed to the loan in March, only months before the presidential elections, it was already exposing itself to the charge that it was backing President Boris Yeltsin over his Communist rival Gennady Zyuganov.


During the campaign, evidence grew that Russia was defaulting on the spirit and several key conditions of the three-year loan. But even though it had the power to cease its monthly disbursements of the loan if Russia strayed, the IMF decided to ignore these breaches rather than create an embarrassing incident for Yeltsin on the eve of the elections.


Now that the elections are over, the IMF has decided to register a mute protest by delaying the fifth loan disbursement of $330 million. It all looks like the United States and Germany, the IMF's principle shareholders, told the fund to keep mum until after the elections in order to help their good friend Boris.


The IMF, keen to defend its role as a nonpartisan international organization, denies this scenario. Given that many key details of the loan deal were never revealed, it is hard to say how far outside the terms Russia went.


All one can say is the timing and logic of events make it look like the IMF has been muzzled for the last six months by politics.


Perhaps the IMF's political bias was justified. The communists would have been an economic disaster, and embarrassing the government in an election year would have risked alienating the IMF from its only allies in Russia.


In any case, the IMF, after passively bankrolling the government for the last six months, must now re-establish some credibility for itself. The review now under way suggests that the IMF is fundamentally rethinking its Russia policy, trying to forget about the past six months.Unfortunately, it looks like some ground has already been lost.


The Central Bank has hinted that the IMF has already agreed to relax targets on money supply and the budget deficit.


But it is now time for the IMF to draw a line in the sand. It must push Russia not just to increase tax collection but on scores of other reforms. Why should it be doing any favors now to a country that is using its money to fight a vicious war in Chechnya?


The IMF will be helping the progressive elements of the government if it takes a hard line and uses its $10-billion leverage to push for rapid reforms.