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. Last Updated: 07/27/2016

Cabinet to Slash World Bank Borrowing

Nearly a year after undertaking a rethink of its relationship with the World Bank, the Cabinet on Thursday approved a three-year plan of cooperation that slashes borrowing and weeds out expenses on intermediaries.

The plan calls for Russia to reduce overall borrowing from the Washington-based organization by $400 million to $500 million a year, eliminate budget-substitution loans and overhaul the way the loans are used.

"We want to minimize the size of budget-substitution loans and prefer in the future to get financial support from the WB in the form of investment loans and infrastructure loans to reform the energy sector, in particular," Deputy Prime Minister Viktor Khristenko said after the weekly Cabinet meeting.

Three plans were presented to the Cabinet. One plan put a borrowing ceiling at $1 billion a year, including $800 million in investment loans and $200 million in guarantees from commercial risks. A second plan was more conservative and was based on the assumption that Russia will not need to borrow anything from the bank after 2003. The Cabinet chose a third plan that was a compromise between the other two.

"Our choice does not mean that Russia wants to cut its cooperation program with the WB, as we are still one of the largest shareholders of the bank and our cooperation can develop in many directions," Khristenko said.

The decision, however, was in line with the government's overall strategy of reducing its reliance on foreign credits.

"In the future we want to use WB money only for concrete projects, including infrastructure reform, legal reform, the computerization of the educational system, customs reform and tax-system reform," Economic Development and Trade Minister German Gref was quoted by news agencies as saying.

There are currently 24 World Bank projects worth a total of $2.2 billion that are still being implemented in Russia, of which $1.2 billion has already been spent. Since 1992, the bank has committed $8.9 billion to Russia and approved $11 billion worth of projects.

The bank plans to discuss its own strategy for Russia this spring.

"The old system of cooperation with the WB has proved to be not effective enough," Gref said. "Almost half of the approved loans were not used at all, and the rest were not spent very efficiently."

According to an Audit Chamber report issued last year, there are currently 20 groups (Project Implementation Units) with 455 employees -- all Russians -- charged with implementing World Bank projects in this country. These groups rang up $65.4 million in administrative expenses in the past five years, 63 percent of which went for salaries. This would come to roughly $20,000 per person per year.

"We consider this system of external managers to be wrong and think that Russian authorities should participate more actively in the managing process," Khristenko said.

There are three different types of systems used by countries that borrow from the World Bank. In the first, the government manages loans; in the second a single PIU manages all loans; and in the third, which Russia has been using, a different PIU manages each loan.

"The Russian government just has to decide which one is the best for Russia," a World Bank spokesperson said.