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. Last Updated: 07/27/2016

IMF Gets Acquainted With Primakov




With a $4.3 billion loan tranche hanging in limbo, the International Monetary Fund's Managing Director Michel Camdessus arrived in Moscow on Tuesday for his first official meeting with Russia's new No. 1 economic policy-maker, Yevgeny Primakov.


"I came to get better acquainted with the prime minister and, I presume, have an interesting conversation with him," Camdessus said upon landing in Moscow, Reuters reported. He and Primakov met Tuesday evening, but there were no details of their talks.


Tuesday was also President Boris Yeltsin's ninth day in a hospital with pneumonia, and Oleg Sysuyev, a top Kremlin aide, reiterated at a news conference that Primakov was now running the economic show. Earlier in the day, Yeltsin and Primakov spoke together on the telephone about how to handle the IMF meeting, the Kremlin said.


The IMF has been critical of Primakov's proposed economic policies, particularly of plans to issue subsidies to industry and of a package of tax cuts his Cabinet endorsed last week. Primakov, in turn, over the weekend described some IMF experts as "kids who've seen almost nothing in life."


But his Cabinet's draft 1999 budget proposals hinge on some IMF funding, which Primakov says he needs to pay off sovereign debts and avoid hyperinflationary ruble-printing.


After paying out a little less than $5 billion this summer, the IMF halted disbursement of a $22.6 billion loan pledged in July. That was supposed to be a bailout package to prevent the devaluation of the ruble and a government default on domestic debt, but it failed and both came about Aug. 17.


Now Camdessus and the fund must decide whether to continue to pay out the bailout pledge to help the cash-strapped Primakov government, or to husband their resources for other nations around the world.


Some observers, including Russian Central Bank chief Viktor Gerashchenko, said Tuesday they doubted the IMF would give Russia any more money this year.


But some argue Camdessus' visit suggests there is something to talk about after all, and that the IMF is gearing up to give Primakov's government at least some money next year.


"I think the IMF wants to give money to Russia, but it does not know how to do it and observe the [IMF's own] condition that Russia must move in the direction recommended by the fund," said Alexander Shokhin, leader of the Our Home Is Russia faction in the parliament's lower house, the State Duma. "I think that is the point of Camdessus' visit."


Russia has been a very high-profile IMF project over the years. The nation already owes the IMF billions of dollars in back loans. Top officials have been talking of defaulting on foreign debts next year - and while no nation has ever defaulted on an IMF loan, preferring instead to jilt less powerful private commercial banks and investors, Russia's economic collapse has already set many dismal records.


"There is a great risk that Russia may become the first country to default on IMF loans," said a government analyst who asked not to be identified. "That would be an extremely embarrassing situation for both Russia and the fund."


Finance Minister Mikhail Zadornov has estimated Russia needs between $8 billion and $10 billion from the IMF next year, while the tranche delayed by the fund since September equals $4.3 billion. Whatever Russia eventually receives, officials say it will be directed toward repaying its foreign debt, including previous loans from the IMF itself.


The Finance Ministry has produced three versions of a draft 1999 budget and is now preparing a fourth that will take into account last week's decision to cut some taxes, including VAT, which brings in nearly half of all revenues.


But not one of the four versions takes into account the possibility that Russia might not receive new IMF loans, according to the head of the ministry's macroeconomic policy department Anton Siluanov.


"If the loans never materialize, the government will have no choice but to restructure its international debts once again, as well as to increase [ruble] emissions and [privatization] sell-offs," Siluanov said.


Even these budgets the Finance Ministry plans for annual inflation of 30 percent, a deficit of 2.75 percent of Gross Domestic Product, and an average exchange rate of 21.5 rubles to the dollar next year. The ruble moved closer to that level on Tuesday as the Central Bank set the exchange rate at 18.25 rubles to the dollar.


One top IMF official, John Odling-Smee, wrote in an analysis published recently by Central European Economic Review that future IMF lending to Russia would have to be based on "actual measures to improve the fiscal situation, and not just promises that these measures will be taken in the future."


But some analysts, noting that for the moment the Duma is favorably disposed toward Primakov and his team, said that using this honeymoon to get a budget through the Duma would involve the exact opposite: promises now, actual tough measures later.


"My impression is that while the government has the Duma's support it wants to get a draft budget approved with a view to cut expenditure where necessary later," said the government analyst who asked to be identified. "But being a democratic institution the fund insists that the Cabinet should insert realistic figures from the start. That is where the fund and the government will have to find a compromise."


Communist leader Gennady Zyuganov also weighed in Tuesday. Reuters quoted him as saying the IMF was likely to eventually release the credits but that was "getting too involved in putting forward political conditions in return for this or that sum."