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. Last Updated: 07/27/2016

IMF, World Bank Warn Against Strong Ruble

The International Monetary Fund and World Bank said Tuesday that Russia, in order to keep its economy healthy, should prevent the ruble from strengthening too much.

"The government should prevent excessive real appreciation of the ruble, which would jeopardize the economic recovery," Gerard Belanger, deputy director of the IMF's second European Department, told an economic conference in Moscow.

"The potential for real appreciation to slow down the economy is already evident," he said. Russian gross domestic product is expected to slow this year to 4 percent from a post-Soviet record of 7.7 percent last year.

"The strong budget surplus of the year 2000 [due to high oil prices] is unlikely to be repeated this year, which will increase greatly the burden on monetary policy," Belanger said, adding that inflation had to be kept under control.

Central Bank chief Viktor Gerashchenko said earlier this year the ruble would remain steady in 2001 if world energy prices remained stable for at least the first half of the year. Inflation is expected to be more than 14 percent.

He has forecast that the ruble will not slip below 30 per dollar this year, compared with the latest official rate of 28.86 per dollar.

World Bank Vice President for Europe and Central Asia Johannes Linn told the conference that the only safeguard against continued real appreciation was an increase in productivity helped by investment.

"An increase in efficient investment would increase the competitiveness of Russian goods in international markets," Linn said. "Efficient investment is the key to long-term sustainable economic development."

"Strong appreciation of the ruble by approximately 12 percent last year makes the Russian economy a victim of its own success because it makes exports more expensive and reduces the competitiveness of Russian goods abroad," he added.

Belanger said maintaining prudent monetary and fiscal policies and reforming the banking system would be key elements in supporting macroeconomic stability in Russia, along with resolution of nonpayment and barter problems.

"It is in those areas that the discussions between the Fund and the Russian authorities have concentrated in the last several months," Belanger said, adding that a trustworthy banking system was an essential component of any market economy.

Belanger said Russian economic reforms should be sequenced to maintain a strong balance of payments and to find a balance between revenues, which are highly dependent on volatile world oil prices and expected increases in budget spending.

He also said tax reforms should be accelerated as much as possible to take advantage of the current high oil prices.

Belanger suggested that the government should consider creating a special stabilization fund based on extra revenues to help sterilize excessive liquidity and smooth possible budget problems when the external situation was not so favorable.

Linn emphasized the need for diversifying investment into the economy, saying it was currently focused in only a few sectors such as energy, fuel and transport.

He said the World Bank was ready to support structural reforms and was monitoring their progress.