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. Last Updated: 07/27/2016

NEWS ANALYSIS: Politics Seen Behind Delayed IMF Payout

WASHINGTON -- The International Monetary Fund has held back a $640 million loan installment for Russia in a move that many economists and Russian officials interpreted as a reaction to political pressure from European nations upset about the war in Chechnya.

After IMF Managing Director Michel Camdessus met Friday with senior Kremlin economic adviser Alexander Livshits, IMF spokesman Thomas Dawson cited Russia's failure to enact economic reforms as the reason for delaying the payment, the second installment of a 17-month, $4.5 billion lending program approved last July.

Camdessus "discussed the required structural measures that haven't been met," Dawson said. "It is likely that these technical issues may take a few weeks to be resolved."

But sources familiar with the IMF talks with Russia said France and Germany were pressing the fund to hold back on its lending program because of the war in Chechnya, where a Russian military offensive has created hundreds of thousands of refugees and caused many civilian casualties. In contrast, the Clinton administration has insisted on keeping IMF loans to Russia separate from its criticism of the war.

"A cold wind blows into Russia, not from the Atlantic; it blows from Europe," Livshits said Friday before meeting Camdessus. He praised the Clinton administration stance on lending as "sensible."

The IMF, which makes loans to countries around the world to stabilize economies, generally does not allow politics to influence decisions about its assistance, but requires governments to meet specific economic targets. "This seriously undermines the IMF as an economic watchdog," said Anders Aslund, an economist and former Kremlin adviser at the Carnegie Endowment for International Peace.

"The Europeans are up in arms over the war, and the IMF tranche is one of the few things they can do anything about," Aslund said. He added that Russia "had essentially complied" with IMF loan conditions and predicted that the IMF move would cause a "total rift in the relationship" between the fund and Russia.

IMF officials acknowledge that Russia met the macroeconomic guidelines that were set in July when the loan was granted, and that are usually the agency's most important benchmarks. Russia has erased its trade deficit, brought its budget into greater balance, and stabilized inflation and its foreign exchange reserves.

However, the government of President Boris Yeltsin has been slow to address the issues the IMF labels "structural," which usually include measures like bank reforms, tax reforms and enterprise reforms. And despite a more than doubling in oil prices and a big trade surplus, Moscow's foreign exchange reserves have not increased.

Russia launched a military offensive against the region of Chechnya two months ago after blaming it for a series of bombs in apartment buildings in Moscow.

Livshits said in an interview Friday that the only reason the IMF should have to link its lending to the war in Chechnya would be if Russia were spending too much on the war. He said the IMF had set guidelines for such spending and that Russia had not exceeded those limits. He said the war had cost about $110 millionso far.

"The IMF has been exposed to great pressures. As a rule, it usually endures," he said. Regarding Russia's compliance with conditions for a new loan installment, he said "you can always find certain shortcomings."

The impression that the IMF decision was influenced by political factors was furthered by remarks made by Camdessus in Madrid at the end of November. Asked about linkage of IMF lending to the war in Chechnya, Camdessus said, "We cannot go on with our financing if the rest of the world doesn't want us to." He said Russia's military campaign in Chechnya is "violent, and the reaction of public opinion is very negative."

European nations were believed to be upset also about delays in the mission of Knut Vollebaek, the foreign minister of Norway. Russia agreed to allow Vollebaek's visit during the Organization for Security and Cooperation in Europe summit in Istanbul recently.

Secretary of State Madeleine Albright spoke to Russian Foreign Minister Igor Ivanov last week to press him about Chechnya. State Department spokesman James Rubin said Ivanov assured her that Russia would allow the visit. "She also made very clear in that conversation our strong opposition to a military solution ... and that there is the potential to harm the U.S.-Russian relationship if this path continues," Rubin said Friday.