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. Last Updated: 07/27/2016

IMF, Russia Face Tough Post-Poll Era

Russian government officials on Monday began their first talks with the International Monetary Fund since the presidential elections, facing questions of whether they can improve tax collection enough to head off a serious budget crisis.


Thomas Wolf, head of the IMF mission in Moscow, said the government would need to "ensure that they've got the revenue back up in as short as possible and keep government expenditures within the parameters of the original program.


"On the macroeconomic side the task is to continue and consolidate the gains and financial stabilization that they've made over the last year and a half," Wolf said.


But the government would also need to tackle structural reforms in areas such as privatization, agriculture industry and regulation of natural monopolies "to see investment go into the right sectors and get higher economic growth," he said.


Anton Tolstikov, deputy head of the Finance Ministry department that works with international monetary organizations, said Monday that Russia's IMF "program was not in very good shape" and the government has not ruled out the option of asking the IMF to review some of the terms of the three-year, $10-billion loan approved this spring.


However, no such discussion was planned for this week's meeting, Tolstikov said.


Yaroslav Lisovolick, an expert at the Russian-European Center for Economic Policy, said the government, faced with a hard choice between fulfilling election promises and maintaining strict monetary policy, was likely to adhere to the terms of the loan.


"This time the IMF will not wave aside the breaches of the agreement because they have already made a number of concessions [to the Russian government] throughout the last six months," he said.


But Lisovolick said Russia was likely to have the next monthly tranche of the loan approved because the IMF was generally assessing "whether the government has control over monetary policy, which the Russian government has so far demonstrated."


One Western economist said that with elections over, the government would finally be able to make good on its long-standing promises to crack down on tax dodgers.


"It turned out to be difficult for them to deliver on these promises, but that period is over," the economist said. "They're going to become much more serious about this, and because they realize they've got to be, they will be."


He said the IMF recognized the need for the Russian government to keep its expensive election promises, but only "within the context of an anti-inflationary budget."


"If they push the revenues up then they can finance a lot more expenditure without running a larger deficit," said the economist.


Prime Minster Viktor Cherno-myrdin last week signed a 30-point program that would impose severe fines on enterprises with overdue tax arrears.


However, Lisovolick said the country's industrial lobby, including the powerful oil and gas sector that traditionally accounts for over 60 percent of budget revenues, would expect dividends and press for lower taxes in return for its backing of Yeltsin in the election campaign.


"It's too early to say that with elections over the government is totally immune from the lobby pressure, especially now that enterprises will have to pay all their arrears," Lisovolick said.


Rem Vyakhirev, head of the powerful natural gas monopoly Gazprom, last week called the agreement with the IMF "anti-state policy" and said it discriminated against local producers.


Oil major LUKoil suggested last Friday the company's production units should be exempted from a pipeline tariff introduced by the government in March to replace oil export duties that were scrapped as part of the agreement with the IMF. The company estimated the tariff would cost it $40 million this year.


Meanwhile, the cabinet on Friday urged the Finance Ministry to cut down the cost of servicing its domestic debt and bring down T-bills yields to between 20 to 40 percent annual rate for short-term bonds, Interfax reported.


But Peter Kisler, an analyst at Rinaco Plus brokerage, said it was "unrealistic" to try controlling a well-developed securities market through government decrees.


"They might try lowering the yields, but they won't be able to meet that target," he said.


Kisler said yields for short-term bonds are likely to stay within the current range of 70 percent to 90 percent over the medium term. If they were driven lower it could spark a banking crisis, he said.


Bella Zlatkis, head of the Finance Ministry's securities department, said Monday the proceeds of future T-bill auctions would be used only to pay off previous obligations and not for state spending purposes, a practice she expected would lead to a fall in yields.