Will Russia Get IMF's Seal of Approval?

VIKTOR GERASHCHENKO, head of Russia's equivalent of the Federal Reserve, announced his arrival at a meeting of International Monetary Fund (IMF) officials with the words: ``Greetings from the world's worst central banker.''

It was a self-deprecating joke in impeccable English. He was using a description of himself by Jeffrey Sachs, the Harvard economist who had been advising President Boris Yeltsin.

Mr. Gerashchenko has been supplying Russian state enterprises with vast amounts of credit, in effect rapidly expanding the nation's money supply. The central bank head sees it as a means of preventing these loss-making state enterprises from going out of business, boosting unemployment, and politically destabilizing the country. Mr. Sachs saw Gerashchenko as the cause of Russia's rapid inflation - about 10 percent or worse a month.

``The poor, those unable to defend themselves, have been hit most heavily,'' Michel Camdessus, managing director of the IMF, told an audience at the Moscow Finance Academy March 21. ``Many people have seen their savings wiped out after long years of work.''

Moreover, high inflation encourages Russian wealth to seek haven in Switzerland or other stable nations. ``High inflation has seriously hurt the Russian economy and society, prevented the recovery of production, and pushed back prospects for growth in living standards,'' Mr. Camdessus said.

In Moscow last month, Camdessus reached an agreement with Prime Minister Viktor Chernomyrdin that the IMF would give Russia a $1.5 billion loan if that nation could come up with a tougher budget by about mid-April. It will need to cut subsidies for state industry and agriculture. It will have to set up a social ``safety net'' in the form of government unemployment insurance and a fairer pension system. It will have to provide for new sources of government revenue to reduce the budget deficit.

Camdessus said he was ``very aware'' that raising taxes ``is politically difficult because it is so in all countries.''

That revised budget will then be examined by IMF experts in Washington. ``Is the budget believable?'' they will be asking. Russian officials have promised much economic reform in the past, but delivered far less. Possibly by May 1 the experts' recommendation on whether or not to make the loan to Russia will be presented to the 24-member executive board of the Fund. Russia itself has a seat on that board.

Russian officials apparently believe that approval is nearly a sure thing. They know that the Group of Seven major industrial democracies have nearly one-half the voting power in the IMF. Since the G-7 can relatively easily round up the necessary votes from a few other nations for a majority, the Russians regard the IMF as the G-7's ``errand boy.''

IMF officials, though certainly aware of the G-7's clout, don't like to think of their institution in such terms. If the IMF gives Russia a loan despite its failure to implement tough measures, other nations such as India or Pakistan that have had to deal with hard IMF conditions on past loans will not be pleased.

On the other hand, the United States, with about 17 percent of the IMF's voting power, is apparently keen for the IMF to make the loan. President Clinton has been under attack from Sachs and others for not doing enough financially to help President Yeltsin survive. And Clinton has criticized the IMF for not doing enough.

IMF officials also are reluctant to put themselves in the position of being the scapegoat should Yeltsin fall and the country become further destabilized or somehow again be a threat to the West. They don't want to be charged with ``losing Russia.''

How the executive board will decide the issue is uncertain. The $1.5 billion loan is tiny compared with an economy the size of Russia's. But the loan has some economic importance because it would signal the so-called Paris Club of creditor nations that they could reschedule Russia's large external debts. It would also amount to something of a ``seal of approval,'' perhaps encouraging foreign investors to risk putting their money and organizational skills to work in Russia.

Economists at the IMF and elsewhere know by now that although outsiders may be able to help Russia with some aid, they can't save it economically. That's the task of Russians themselves.

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