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. Last Updated: 07/27/2016

Economic Proposals Criticized in IMF Letter




The International Monetary Fund criticized the Russian government's economic plan in a memorandum leaked to the press Tuesday, saying it did not address the key issues of macroeconomic stabilization.


The IMF memorandum, handed to First Deputy Prime Minister Yury Maslyukov last week, called the government plan "a significant step back in the transition to a market economy" because it strengthened government control over the economy and relied on emissive financing of the budget deficit.


The IMF document was signed by Jorge Marquez-Ruarte, who headed the fund's mission to Moscow that ended last week without recommending the IMF release of the next $4.3 billion tranche of a bailout package agreed to in July.


The IMF never released the confidential memorandum to the press, but it was leaked to several publications in recent days by sources in the government. Excerpts of the memo were published in the weekly Moskovskiye Novosti and in Kommersant Daily on Tuesday, and also carried by Reuters, which said it obtained them from Maslyukov's office.


"The inflation objectives in the government program are adequate, but there is no precise explanation of measures that will be required to reach these objectives," the memorandum said, referring to the state's projections that inflation will be limited to 3 percent to 4 percent a month during the remainder of 1998 and to 20 percent in 1999.


The IMF mission said inflation could be limited to 25 percent next year and the ruble rate could be stabilized at about 20 to the dollar. But the IMF added that this would require a tight fiscal policy. This would contradict the government's plans to cut value-added and profit taxes. The IMF said tax cuts were not timely and would lead to a drop in tax revenues.


Besides, if Russia is to keep inflation low, the IMF said, it would have to limit the issuance of loans to ailing banks.


The mission criticized the Central Bank's plan for reviving the Russian banking system.


The number of banks the Central Bank plans to keep afloat is unrealistic, the mission said, adding that plans to recapitalize commercial banks presented a threat to the solvency of the Central Bank itself.


The IMF said bailing out bankrupt factories was just as unacceptable as saving banks with long-term loans and would only deepen the crisis.


The mission's memorandum called for the government to cut its spending on the military and the police force and to take steps to eliminate the 4 billion to 5 billion ruble monthly deficit of the State Pension Fund.


The IMF also objected to the plan to force exporters to sell 75 percent of their hard currency earnings for rubles.


Communist Party leader Gennady Zyuganov slammed the IMF memorandum Tuesday, saying it criticized the very points of the government plan that the Communists backed.


"They don't like any of it - lower taxes, support for producers," Zyuganov was quoted by Interfax as saying. "That's why they don't want to give us money."