Reuters on $22.6 billion package
Global lenders pledge new help to Russia
canoe.com
Monday, July 13, 1998
MOSCOW, July 13 (Reuters) - Russia's economy was thrown a $22.6-billion lifeline on Monday by international lenders who gave a resounding vote of confidence to the government's plans for dealing with an acute financial crisis. "The decisions taken today signify a restoration of faith in Russia's ability to overcome its
difficulties," the Kremlin's chief debt negotiator Anatoly Chubais told a news conference.
Russian share and debt prices leapt on the announcement, which gives the government a sorely needed breathing space as it struggles to meet debt servicing obligations and stave off a
possible devaluation of the rouble.
But economists said much would now depend on Prime Minister Sergei Kiriyenko's ability to
deliver on promises to boost woefully low tax collection and to cut state spending. Chubais said the bailout negotiated with the International Monetary Fund (IMF) and
other lenders amounted to $22.6 billion in new credits spread over 1998 and 1999 -- much more than initial estimates.
He said Russia would receive $14.8 billion of this sum in 1998, including $6 billion from the IMF
shortly after the Fund's board meets next Monday.
Chubais also announced an ambitious plan to reduce Russia's short-term domestic debt burden by replacing short-term government securities with longer-term dollar-denominated
debt. "The measures proposed by the government and the central bank have been backed by the international financial community," said Chubais, a former finance minister and architect
of Russia's controversial privatisation programme.
IMF Managing Director Michel Camdessus said in a statement issued in Washington that the loan package and reforms by the government would strengthen the country's fiscal position.
"The strengthening of Russia's economic policies -- both fiscal and structural -- the large additional financial resources, and the debt conversion scheme, should fundamentally improve the financial situation of the Russian government," he said. The World Bank said in Washington it would provide up to $6 billion to Russia in 1998
and 1999 as part of the overall package, subject to "strong progress" with market reforms.
Japan has said it will also provide $1.5 billion to Russia in a package co-financed by the World Bank. On Monday Kiriyenko began two days of talks with Japanese leaders in Tokyo.
White House spokesman Mike McCurry said the United States welcomed Monday's deal as a "major step forward," reiterating President Bill Clinton's support for Russian economic reforms.
Chubais said Monday's deal was reached after what he called the toughest talks Russia had ever had with the IMF.
IMF official John Odling-Smee told the same news conference Moscow had vowed to cut its budget deficit to 5.6 percent of gross domestic product (GDP) this year and to 2.8
percent in 1999, which means more belt-tightening for Russians already angered by chronic wage delays and lack of economic growth.
Russia's opposition-dominated lower house of parliament, the State Duma, is due to debate the government's austerity measures on Wednesday but is not expected to approve them all.
The Duma's deputy speaker Vladimir Ryzhkov, a member of the generally pro-government Our Home is Russia faction, gave a guarded welcome to the IMF package but said it would not be enough to rescue Russia's battered economy.
President Boris Yeltsin has hinted that he might dissolve the Duma and implement reforms by decree if deputies fail to back the government's anti-crisis measures.
The 67-year-old Kremlin chief, who has postponed two foreign trips this month in order to monitor the situation from Moscow, fears the financial crisis could fan social and political tensions.
Millions of workers go for months without wages. Miners and other disaffected groups have been picketing the government headquarters at the White House in central Moscow demanding cash and the resignation of Yeltsin and Kiriyenko.
Last Friday, signalling the depth of his concern, Yeltsin told military and police officers that Russia had the ability to crush any "extremist" attempt to seize power.
Economists predicted tough times ahead for Russia.
"The $22.6 billion was more than expected. I think it is good news ... But the IMF wants to see some action from the Russian authorities to push the tax code through and to tighten policy through its austerity package," said Geoffrey Dennis, a market strategist at Deutsche Morgan Grenfell in London.
After the IMF announcement, Russia's benchmark shares index, the RTS, rose nearly 10 percent to close at 157.20 on $40 million reported volume, higher than recent levels.
Russian dollar-denominated debt surged in London and the rouble last traded at around 6.2285, up from Friday's 6.243.
Chubais and Odling-Smee said Russia's anti-crisis measures and the new loans would avert a possible rouble devaluation.
Speculation had been growing on markets that Russia lacked the means to protect the rouble for long.
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