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. Last Updated: 07/27/2016

IMF Sours on Russia, Praises Baltics

VILNIUS, Lithuania -- The International Monetary Fund is lowering its growth forecasts for Russia since "vested interests" are slowing reforms and global economic trends are due to take a toll, a senior IMF official said Tuesday.

"We think the growth rate will decline, apart from problems of the world economy, unless there is a big political push to speed up structural reforms," said John Odling-Smee, who oversees IMF activities in former Soviet Union countries.

"Most observers think this probably will not happen between now and the end of the election season," Odling-Smee said in Vilnius on the eve of a visit to Moscow, referring to general elections in December and a presidential ballot next March.

He said the latest IMF forecast that Russian gross domestic product would grow 4.9 percent in 2003 was "definitely too high" and would be revised.

"Most observers in Russia now talk about 4 percent and we would not disagree with that, even if oil prices are high."

Russia, the world's second-largest crude exporter, is targeting 4.5 percent growth this year, up from 4.3 percent in 2002.

Odling-Smee urged Moscow to tackle four areas of reform that were "being blocked by a lot of vested interests, but are critical for moving toward a more market-oriented economy."

Those included improving public administration, raising prices for energy and other natural monopolies to a proper market level, overhauling the banking sector and reducing import protection with an eye to joining the World Trade Organization.

Odling-Smee said the small ex-Soviet country and its two Baltic neighbors Latvia and Estonia were examples of how to achieve sustainable rapid growth even in a global downturn.

The three Baltic states, which are set to join the European Union in 2004, all reported annual GDP growth of 5 percent to 7 percent for 2001 and 2002.

"The Baltics have put all the basic reforms in place now, so they are getting the investments to boost production, and they are able to sell it because their costs are lower than competitors in Western Europe and even much of Central Europe," Odling-Smee said.

"This is a process we see continuing for many years, assuming they maintain their prudent macroeconomic policies and continue to improve the business environment."

The same cannot be said for similar fast growth now seen in other parts of the former Soviet Union, Odling-Smee added.

"Many CIS countries have started growing just as rapidly as the Baltics, but we are much more concerned about the sustainability of this performance."