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. Last Updated: 07/27/2016

IMF Chief Links Chechnya to Loans

Relations between the International Monetary Fund and Russia took a decidedly frosty turn Monday as Russia reacted to a warning from the head of the fund that world reaction to the Chechen war could hamper future releases of international loans.

The IMF "has taken a political stance for the first time when deciding economic questions," First Deputy Prime Minister Viktor Khristenko said.

"It's the first time this has happened in the history of the IMF, and above all it discredits the Fund's policy as a financial institution," Khristenko said Monday in remarks cited by Russian news agencies.

IMF chief Michel Camdessus drew fire from leading Russian politicians across the board Monday for saying that the negative world reaction to Russia's assault on Chechnya could have an impact on the fund's decision to release a much delayed $640 million loan tranche.

"We cannot go forward with the financing if the rest of the world doesn't want to," Camdessus told reporters at a seminar in Madrid over the weekend.

"The violent military campaign in Chechnya is creating very negative reactions against Russia in the world," he said, Reuters reported. "I suppose when the time comes for a decision on the [loan] program, IMF directors will reflect world opinion on this matter."

Camdessus' comments came amid mounting Western concern over Russia's ferocious military actions in Chechnya as the death count of civilian casualties in the war zone continues to climb.

Until now, the fund had said only that loans would be frozen if increased military expenditure meant that Russia's budget spins out of control beyond the parameters set in the IMF program. However, Camdessus' unprecedented comments Saturday follow increasingly vocal fears that the release of loans would indirectly help finance the war.

"This was a political statement. Camdessus is not an independent man," said Gennady Seleznyov, the Communist State Duma speaker, Interfax reported.

He linked the comments to the recent OSCE summit in Istanbul where Russia faced a tide of criticism from the West over its actions in Chechnya.

Former First Deputy Finance Minister Oleg Vyugin said a decision not to release funds by year's end because of political concerns could put IMF relations with Russia on hold indefinitely.

"If funds are not disbursed by the end of the year, it will be very difficult to start up talks again," Vyugin said in a telephone interview Monday.

"The IMF will lose control of its debtor," he said. "The fund cannot say it does not have the right to decide whether funds are disbursed and others decide for it instead. That makes a mockery of macroeconomic agreements [with the IMF]."

"If funds are not disbursed, Russia could fall behind in meeting the structural reforms demanded by the IMF," he said. "It's in nobody's interests to delay the release of funds any further."

Other analysts also thought it unlikely that the IMF boss's words would have much effect on Russia's actions.

"Camdessus' comments are part and parcel of a general attempt to put pressure on Russian authorities to seek other ways of resolving the conflict in Chechnya," said Yevgeny Gavrilenkov, deputy head of the World Bank-funded Bureau for Economic Analysis.

"It does seem, however, that funds will still be disbursed by the end of the year," he said. "Camdessus's words are likely to have little impact on how Russia conducts its campaign."

However, several economists said Monday that Camdessus had simply stated the obvious.

"The managing director of the fund just said something that everyone should always be aware of - that every decision it takes has to be approved by its shareholders," said Charles Blitzer, an economist at Donaldson Lufkin and Jenrette.