Michel Camdessus, managing director of the International Monetary Fund, plans to recommend an additional $4.5 billion in loans to Russia to keep it from defaulting on earlier outstanding IMF loans, officials said today after the Russian government approved new economic policies.
If the IMF board agrees, as is likely when the proposal is made in two weeks, Russia will be able to borrow $1.9 billion this year and the remainder the following year, Russian officials said. The new loans would keep Russia from failing to make scheduled payments on its old IMF loans.
Avoiding a default to the IMF is important because although Russia has effectively defaulted on some of its government bonds already, a failure to pay the IMF would make Moscow even more isolated from global capital markets, threatening its tenuous economic stability. A default by Russia, the IMF's biggest borrower, would also deal a blow to the fund's credibility.
Oleg Vyugin, a Russian deputy finance minister, said one of the fund's main requirements was that his country pay down its overall IMF debt, not increase it. Russia owes a total of $16.5 billion and will repay $4.4 billion this year, Vyugin said.
Russian officials will not actually see the new funds; the IMF will simply move the money from one account to another.
Before the IMF board votes on the recommendation, Russian officials must also give the fund a copy of an audit of the Russian central bank's dealings with an obscure offshore investment firm and take any "corrective actions" recommended by the auditors, an IMF spokesperson said.
The audit, by PricewaterhouseCoopers, concluded that Russia's central bank misreported its foreign currency reserves to the IMF by $1 billion in 1996. The auditors found the central bank lent the money to the Russian government and then dispatched the government's note to Financial Management Co., a firm based in the Channel Islands that started with $1,000 in capital.
Nicholai Gonchar, a Russian legislator who has followed the controversy, said last week that a previous audit had warned the central bank against dealing with that firm.
The IMF spokesperson said Russian officials must take other measures as well before the board's vote, but gave no details.
A statement of economic policy signed today by Prime Minister Sergei Stepashin and approved by the IMF calls for a budget surplus of 2 percent of the gross domestic product, a floating currency rate and an increase in currency reserves by the end of the year.
Russia is also hoping the World Bank's board, due to meet July 22-23, will approve more loans to help coal-mining regions and further social reform. The World Bank tends to follow the IMF's lead on financing for Russia.
The IMF loan will also likely pave the way for restructuring Russia's debts to other foreign creditors, including the "London Club" of commercial creditors and the "Paris Club" of creditor nations. Russia has missed about $2 million in payments on Soviet-era debt to those creditors.
Political analysts in Moscow had predicted the IMF would not turn its back on Russia after President Boris Yeltsin's contribution to ending the war in Yugoslavia and suggested the IMF seemed less insistent that the Duma, the lower house of parliament, pass certain budget measures after a peace accord was reached. But other analysts say the IMF is simply continuing its policy of trying to help Russia out of its economic hole, with stricter reform requirements.
Camdessus said last month that he was encouraged by figures showing Russia's industrial production and tax revenue are up while inflation is losing steam. But he said Russia's economic turnaround depends on major reforms.
Staff writer Paul Blustein contributed to this report from Washington.
CAPTION: Michel Camdessus plans to recommend loans for two more years.