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. Last Updated: 07/27/2016

IMF Cash Flowed as Reforms Faltered




WASHINGTON -- Russia's ties with the International Monetary Fund are a litany of broken promises, ambitious plans and missed opportunities, according to once-confidential documents available under new IMF rules.


The papers, covering the first three years of Russia's ties to the IMF from 1992 to 1994, show that Moscow repeatedly reneged on commitments to the international lending agency as it sought to dismantle its Soviet-era centrally planned economy and build a capitalist system modeled on those in the West.


The IMF complained time and again about Russian tax and monetary policies but interspersed this criticism with three crucial decisions to loan Russia billions of dollars.


Fund lending - Russia received some $4 billion of IMF money between August 1992 and April 1994 - was underpinned by promises rather than by performance, and IMF staff often had to admit that economic targets had fallen by the wayside as the government switched tack in an era of deep uncertainty.


"There are clear and tangible risks regarding the achievement of the government's objectives," said a document summarizing IMF board discussions on Aug. 5, 1992, the day Russia won its first $1 billion IMF cash injection.


"Directors expressed particular concern about delays in the implementation of some agreed measures, which added to concern about the risks," it said.


But the board, in comments that set the tone for IMF ties to Russia in the years to come, also made clear it was ready to be kind to Russia asit tried to build a market economy. "We should ... give the authorities the benefit of the doubt," the statement said.


The IMF made its papers available to bona fide researchers under new rules that allow access to some IMF documents after five years. They give a one-sided view of IMF ties with Russia: Executive board papers are available but Russian statements to the fund will be released only after 20 years, and the IMF has not released statements from individual executive directors.


These statements could provide clues to why the IMF acted as it did and to what extent politics played a role. Russia inherited the Soviet Union's nuclear arsenal and rich countries were eager to cement support for President Boris Yeltsin and the reformist governments of his early years in power.


Russia, the world's largest country by area, has become the IMF's biggest single borrower in the eight years since it joined the lending institution once dismissed by its Soviet-era leaders as an exploitative tool of the capitalist West.


It currently owes the fund some $15.2 billion, down from a July 1998 peak of $19.3 billion.


The IMF archives from 1992 to 1994 show the fund expected Russia to remain a big borrower for many years, but IMF staff also envisaged a much faster turnaround in the hard-hit Russian economy, which is only now recovering from years of recession.


"Staff remains optimistic about the prospects of achieving a successful transition to a market economy in Russia," said an April 1993 report drawn up for the annual IMF review of Russia's economy.


"Important steps such as price liberalization and exchange rate unification have been taken and in other areas, such as privatization, the direction of policy is clearly right."


The fund, admitting its forecasts were hedged with uncertainties, predicted Russian growth of 6 percent to 9 percent from 1994 to 1996. Reality brought three more years of a painful slump and frantic debates between reformers and conservatives about how best to push on with the economic transformation.


Themes running through the IMF documents show how difficult successive Russian governments found it to stick to the targets they agreed on with IMF experts amid complaints from a hostile State Duma and from an anti-monetarist Central Bank, which had long said higher interest rates would push inflation up.


Early discussions centered on what the IMF viewed as lax monetary policy and fund staff complained that subsidized credits and interest rates well below inflation rates were contributing to higher inflation and damaging capital flight.


The focus later shifted to unattainable budget plans and government attempts to meet deficit targets by sequestration - simply not spending money it had promised to spend.


"The theme of this meeting has been implementation ... not in any way as an expression of worry or mistrust but as an expression of support and due recognition of the fact that the authorities will face a major task in sticking to the policies of the program," said a July 1993 document summing up board discussions about the second $1.5 billion IMF cash injection to Russia.


The meeting, delayed for weeks while the IMF waited for Russia to meet some promises, took place just before the Group of Seven leading industrial nations met to discuss economic and monetary policies. Russia was high on the agenda.


Within weeks it became clear that the IMF had been right to worry about whether the plans would work.


"Russia's economic program has gone seriously off-track as the authorities failed to abide by key commitments in the areas of monetary, fiscal and trade policies," said a confidential document from September 1993.


"They appear to now have in mind a considerably less ambitious target for inflation than that contained in their original program. ... Unfortunately the targets set for December 1993 are now out of reach."


Less than a month after that Yeltsin swept his conservative opponents aside when he sent tanks against lawmakers holed up in the White House. Six months later the IMF opened the lending taps again, approving a $1.5 billion payment despite reservations about whether Russian policy was tight enough. "There are significant risks," it said.