How would joining a Greater Russian Federation help them? Oh, maybe this...IMF Offers Russia $4.5 Billion Loan Lifeline
WASHINGTON, Jul 29, 1999 -- (Reuters) The International Monetary Fund re-opened the lending taps for big borrower Russia on Wednesday, approving a $4.5 billion loan to help Moscow pay its debts and avoid a confidence-cracking default.
But an IMF statement announcing the immediate release of $640 million from the loan also complained of poor tax collection and delayed reforms in the world's biggest country by land area.
Russia, which stunned the financial world with a debt default last year, needed to find "orderly and cooperative" ways to reschedule its debts, the IMF said. Russia should delay additional tax cuts until it improved its dismal record.
"Directors noted that there had been little progress in structural reform since last August, with some reversal in important areas," IMF First Deputy Managing Director Stanley Fischer said in the statement.
"Tackling the pervasive problems of barter and non payments and the acceleration of bank restructuring would be key to the sustainability of macroeconomic stabilization and growth."
The IMF has paid Russia billions of dollars in the past seven years, including an emergency injection of $4.8 billion in July last year. But the economy shows few signs of recovery and the IMF predicted a 2 percent decline in gross domestic product in 1999.
This is the first IMF payment to Russia since the July 1998 loan and since cash-strapped Russia devalued the ruble and defaulted on some debt last August. It should make it easier to reschedule Russian debts from bank and country creditors.
The IMF said Russia would receive the money in seven installments, provided it met its promises to the fund.
In an unusual development, money from the loan will never actually reach Russia, but will be paid directly to an account at the IMF and be used to service Russian debt, IMF officials said when they discussed the credit earlier this year.
Russia has a poor track record meeting terms of IMF loans, and the fund has repeatedly complained about tax collection, mounting arrears and sluggish progress on reform.
The fund has also asked for information about what happened to previous IMF loans, and Wednesday's statement expressed dismay about a previous program that channeled funds through an offshore subsidiary of the Russian central bank.
The IMF said at least one installment of IMF cash would probably have been delayed in 1996, the year when President Boris Yeltsin won re-election, if the IMF had known more about the activities of central bank offshoot Fimaco, based in Britain's tax haven of the Channel Islands.
"Directors expressed strong disapproval of the finding that the channeling by the central bank of domestic transactions through Fimaco ... meant that the balance sheet of the central bank had given a misleading impression of the true state of reserves," Fischer said, using uncharacteristically strong language for the IMF.
But Fischer said there was no evidence that the July 1998 injection of IMF cash had been misappropriated.
Russia promised in a July 13 letter to the IMF that it would publish an independent review of Fimaco's activities, and the letter also contained a candid admission of Russia's past economic mistakes.
"We readily acknowledge that these fundamental elements of the crisis reflect, in part, the fact that the implementation of the government's economic program over the past several years has been incomplete," the letter said.
"The inability of the government to enforce cash payments and pay its own bills in a timely fashion has played a significant role in the spread of the nonpayment problem."
IMF figures show that Russia owed the fund some $17 billion at the end of June, including money from last July's emergency cash injection. ((c) 1999 Reuters)
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