Russia Moves Closer To Bailout by West
G-7 nations, international agencies promise aid - with strings
IN meeting with his principal donors at the Group of Seven (G-7) economic summit in Europe, Russian President Boris Yeltsin has moved one step closer to the $24 billion aid package that he was promised in April.Skip to next paragraph
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The G-7 assistance, pledged by the world's leading industrialized countries, the International Monetary Fund (IMF), and the World Bank, is predicated on Russia's subscription to an IMF economic-reform program.
On July 5, the eve of the Munich summit, and after weeks of tough negotiating, Mr. Yeltsin reached a crucial preliminary accord with IMF managing director Michel Camdessus in Moscow. (G-7 goal: Pep up global economy, Page 3.)
After IMF board approval, Russia will be entitled to borrow up to one-fourth of its $4 billion quota during this first phase.
The IMF will transfer $1 billion by Aug. 7, and another $1 billion could be made available as early by October, Mr. Camdessus says.
A senior European Community official, who anticipated that this partial step would be taken, says that Yeltsin may now harbor "very unrealistic" expectations that the G-7 will offer to write a check for $24 billion.
The G-7 aid will be fully disbursed after Yeltsin's government takes steps to reduce budget deficits, stabilize the ruble, and work out a payment schedule on its $74 billion foreign debt. The G-7 was to consider, July 8, Russia's request for a two-year moratorium on debt payments.
Russia's reformers are trying to assure go-slow hard-liners (strongly represented in the rebellious Russian Parliament, where some 70 percent of the members have regularly countered the reformist course) that their approach is gradual, while attempting to convince would-be international donors and investors of Russia's strides toward a market economy.
Despite the G-7's aid proposal, and their consideration of another $20 billion needed by the 14 other republics this year, they defer the most daunting of tasks to global organizations.
IMF and World Bank economists are charged with helping to create macro- and micro-economic conditions in which aid, and ultimately foreign investment, can affect change.
In a world bereft of knowledge on converting massive, failing communist empires to capitalist systems, the multilaterals' approaches are largely regarded as the best solutions to an increasingly complicated problem.
But they are asked to assess the ex-Soviet needs in a region traumatized by ethnic and nationalist strife and a constantly changing political landscape. Their most formidable obstacle has been the virtual absence of important economic and financial records and statistics.
The IMF has counseled Russia's government to rein-in reckless budgets, pare inefficient enterprises, and raise prices on heavily subsidized goods. Critics have assailed the IMF for pushing countries through rigorous reforms too quickly and exacting perilously high economic and social costs.
In Russia alone, closing inefficient state-owned enterprises and paring the bloated bureaucracy could leave some 10 million to 15 million of Russia's 75 million workers unemployed by the end of 1992, labor experts say.
Keenly aware that popular opinion (and conservatives in Parliament) will not sustain such a program, Yeltsin has rebuffed the IMF's drastic demands, especially the its insistence on raising Russian energy prices to world market levels.
Yeltsin's government launched an economic reform program in January 1992, lifting most state price controls and dismantling much of its central planning. The moves unleashed hyperinflation, while industrial production plummeted. Inter-enterprise debt soared to hundreds of billions of dollars.
The most difficult problem remains the near-worthless, unconvertible ruble. The IMF has been careful not to encroach on these trappings of national sovereignty, and not to poison relations with the newly independent Russia, whose population is under severe stress as reforms are imposed.
But with the currency issue far from resolved, the IMF is not ready to provide a $6 billion stabilization fund that provides reserves for support of exchange rates at any certain level. The IMF is waiting until tight monetary and fiscal policies are in place.
Shortly after Russia unveiled its second stage of economic liberalization in June, including privatization, enterprise creation, and an inter-republic payment clearinghouse with other republics, IMF-Russian negotiations intensified.
The IMF's decision over the weekend to move from its previously rigid position was a necessary compromise, says US Treasury Undersecretary David Mulford, an accomplished international economist among G-7 officials who is known for for his cautious approach on aid to the ex-Soviets.
Mr. Mulford now applauds the IMF's flexibility, which should allow Russia to forge ahead with reforms, albeit with a struggle.