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. Last Updated: 07/27/2016

IMF Allows for Extra Ruble Emission

An International Monetary Fund official said Tuesday that Russia might have to print some rubles this year but the government still needed to pursue a tight fiscal policy.

Assessments of how many rubles the government will need to print this year abound. Finance Minister Mikhail Zadornov said in an interview with the daily Izvestia on Tuesday that the maximum emission in the fourth quarter will be 25 billion rubles ($1.6 billion). First Deputy Prime Minister Yury Maslyukov said Monday that he and an IMF mission that left Moscow last week agreed on a figure of 12 billion rubles.

Government officials insist that emission will be smaller than the 65 billion-ruble budget deficit projected for the fourth quarter. They say Russia will hold out financially until the end of this year by improving tax collection and raiding the Central Bank reserves.

The hope is that the IMF, which has refused to lend to Russia, might soften its stand next year and provide some aid.

"If we manage to hang on until the end of the year, at the beginning of 1999 we can count on receiving the IMF's delayed loan," State Duma deputy and former Deputy Prime Minister Alexander Shokhin was quoted by Interfax as saying Tuesday.

The IMF official, interviewed by Reuters in Washington, said the IMF might turn a blind eye to some emission if the Russian government followed the recommendations the IMF mission in Moscow passed on to Maslyukov last week.

"We provided the authorities with our views regarding the appropriate stance of monetary policy, both in the near term and in 1999," the official said. "In this context, and in the event that a comprehensive fiscal package were put in place, we would regard it as appropriate for the Central Bank to have some room for funding the budget."

The official insisted no emission amount was agreed in the Moscow talks last week, though Maslyukov's spokesman Anton Surikov disputed that.

"I was at the talks and the IMF representatives did not object even to a 20-billion-ruble emission, let alone 12 billion," Surikov said Tuesday.

The government is trying hard to show it is working to boost revenues as the IMF has urged it to do. State Tax Service chief Georgy Boos said Tuesday that the federal budget received 12.2 billion rubles in cash from taxes in October, whereas only 6.3 billion rubles out of September's 9.3 billion ruble tax revenue was hard cash.

Boos said the October cash tax collection figure was comparable to July's and only slightly lower than April's. He alsosaid the natural gas monopoly Gazprom, one of the budget's largest sources of revenue, was contributing more money than ever before. "In the best of times, when [former Prime Minister Sergei] Kiriyenko was attacking Gazprom with a club, the volume of Gazprom's cash payments was less than in the month of October," Boos said.

The IMF has criticized the government for planning to cut taxes. But Boos said the cuts would be counterbalanced by some new measures planned for next year, including a plan to bring forward payment deadlines and introduce some excise and imputed taxes.

"These steps will not allow us to fall down in the first quarter of next year," Boos said, adding that his service considers its 35-billion-ruble revenue target for the fourth quarter of 1998 as "realistic."

But Joel McDonald, tax attorney at the law firm of Salance, Hertzfeld & Heilbronn, said that comparing October tax receipts with those from before Aug. 17 is "like comparing apples and oranges" because the ruble has lost 60 percent of its value in the last two months.

Zadornov said in his Izvestia interview said that out of the projected 65-billion-ruble fourth quarter deficit, about 40 billion rubles represented repayment on foreign debt. He said this money would be raised by raiding the Central Bank's hard currency reserves rather than by printing money.

He said the Central Bank would be able to replenish its reserves via the foreign exchange market. "Reserves will not go down, however, because the Central Bank is actively buying hard currency on the market and using it to repay external debts," Zadornov said.

Central Bank currency reserves went up from $13.1 billion to $13.3 billion in the last week of October.

According to the memorandum passed to Maslyukov, the IMF wants Russia to set a budget surplus of 3.5 percent of GDP for 1999, which would turn into a 0.75 percent GDP deficit after foreign debt payments.

But analysts believe that this would be unrealistic even if the government accepted all of the fund's policy recommendations. "Even if they completely change their course, there will be a deficit, though a smaller one than they will have with the current policy," said Peter Westin, an economist at the Russian European Economic Policy Center.