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. Last Updated: 07/27/2016

IMF Seeks Economic Plan Before Freeing Loan




The International Monetary Fund on Friday said it would consider disbursing more funds to Russia only after it had seen a concrete economic plan from the new government.


An IMF delegation headed by Jorge Marquez-Ruarte left Moscow after a round of talks and promised to return Oct. 12 to resume debate on payment of a $4.3 billion loan tranche originally due in September.


"The government will need to consider urgently the narrow range of alternatives still available and quickly decide on its economic strategy," the IMF said in a statement released to news agencies. "IMF management would consider the appropriate size and timing of further disbursements once such a comprehensive program had been agreed."


Earlier, the IMF's acting director in Russia, Alexander Mozhin, said the fund would make a decision by late October.


In a surprise announcement likely to botch talks, Russia's chief negotiator with international lenders, First Deputy Prime Minister Alexander Shokhin, resigned to protest the reappointment of liberal Mikhail Zadornov as finance minister.


Few economists see Russia meeting the terms of international loans as it promises to print massive amounts of money - the figure Central Bank chief Viktor Gerashchenko has named is 40 billion to 50 billion rubles this year - without even a nod to tax collection. One IMF official in Washington said the fund wasn't buying Russia's assurances that inflation would be controlled.


"This institution, after 53 years of existence, does not know what controlled inflation is, if not one of the avenues to hyperinflation," the unidentified official was quoted by Reuters as saying.


He said the loan disbursement would depend on further talks and on a concrete economic plan by Prime Minister Yevgeny Primakov's government. The new Cabinet is expected to unveil a proposal next week.


The IMF is also keeping an eye on the outcome of the government's heated dispute with foreign investors over domestic debt restructuring.


Economists say the divide between Russia and foreign lenders has never looked so great.


"There's no budget, there's no economic program," said Charles Blitzer, emerging market economist with Donaldson, Lufkin & Jenrette in London. "I think we're a long way away from the next tranche."


How Russia plans to use the funds remains unclear, although Shokhin on Thursday hinted the nation may be forced to default on its foreign debt if it doesn't receive promised credits soon. Last week, he warned that Russia would have to print money if loans were not forthcoming, suggesting the money was earmarked for budget expenses.


The Federal Audit Chamber, a watchdog group funded by the State Duma, criticized Russian officials this week for spending past loans to service foreign debt. An official with one international donor organization, however, said similar disbursement of future funds would "not be unacceptable."


Also under debate is $1.2 billion in World Bank funding meant to be disbursed by the end of the year. A World Bank spokeswoman Friday said the creditor has established a special working group in Washington to evaluate Russia's ability to meet the terms of several loans in light of the financial crisis. Michael Carter, resident representative of the World Bank in Moscow, said this week further disbursements would depend on Russia's commitment to elaborate reforms of Russia's state monopolies, including the restructuring of Gazprom, outlined in loan agreements.


"If structural reforms go ahead, we would like to give support," Carter said.


But with more conservative forces taking charge of Russia's economy, the likelihood of that has become minimal.


"This is not a government that is going to impose reform on the gas industry," said Stephen O'Sullivan, co-head of research at United Financial Group. "It's not even going to be on the agenda."