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. Last Updated: 07/27/2016

Political Interest Lurks Behind IMF Payments

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Russia and Kazakhstan have something in common: They have both paid back their loans to the International Monetary Fund earlier than scheduled. From an economic standpoint, this was not a fiscally responsible decision. An economist familiar with Kazakhstan described its decision to repay IMF loans early as based more on "political pride" than economic reason.

IMF loans are low-interest. Economically speaking, it makes more sense to keep the loans, to pay in installments and, in Russia's case, to keep the money in the stabilization fund. Kazakhstan and Russia have both benefited from rising oil prices that brought economic growth and the additional revenue to pay back the IMF. Both countries have used the stabilization funds that the IMF advocates for countries susceptible to strong national currencies due to increased revenue from natural resource commodity exports.

So why pay back the IMF early? Many countries have a love-hate relationship with the IMF and would like to be free of the restraints that the institution may impose on their economic decision making. For instance, Uzbekistan's decision to accept complete currency convertibility of the current account in October 2003 was done without taking any additional loans from the IMF. The fact that Uzbekistan did not take out additional loans was explicitly noted numerous times by Uzbek Economic Minister Rustam Azimov.

President Vladimir Putin and Kazakh President Nursultan Nazarbayev likely see potential political benefits in paying back the IMF early. First, it allows both presidents to state that under their leadership and economic management, they were able to accomplish this feat. There is some substance to this beyond political rhetoric. Yet if they had not followed the IMF's advice to establish stabilization funds, they would not have been able to pay off their loans so easily.

Second, the decision allows both presidents to pursue their economic and political agendas free from an institution widely perceived as a U.S. economic tool. The United States holds the largest voting percentage on the executive board and thus has veto power over most important decisions. It was certainly in the interest of the United States to provide economic assistance through the IMF to the countries of the former Soviet bloc, especially the nuclear states, at the end of the Cold War.

It seems that Kazakhstan and Russia began their relationship with the IMF for political reasons, and they ended their dependence on the institution for political reasons as well.

Pamela Blackmon is a visiting assistant professor in political science at Oklahoma State University. She contributed this comment to The Moscow Times.