Primakov Sends Kirienko to Appeal to IMF for Aid
Summary:
Russian Prime Minister Yevgeny Primakov has reportedly asked his
reformist predecessor, Sergei Kirienko, to travel to Bonn to
appeal to Western creditors to restructure Russia's debt.
Primakov's communist economic chief has failed miserably in talks
with the IMF, and perhaps Primakov hopes that a change of medium
will make the message more appealing. But Russia's problems with
the IMF are not something that can be rephrased away, and
Primakov can not give Kirienko the authority to negotiate the
necessary changes in the Russian economic plan. So the trip is a
last desperate, and probably futile, effort. We understand why
Primakov would give it a shot, but why would Kirienko go along
with the scheme? If Kirienko goes to Germany, it will be to beg
-- for Russia, for reform, for himself. We do not envy him.
Analysis:
The Russian business daily Kommersant reported on February 10
that Russian Prime Minister Yevgeny Primakov has asked his
predecessor, Sergei Kirienko, to go to Germany to discuss
Russia's preliminary debt restructuring proposals with Western
creditors. The reformist Kirienko was sacked by Russian
President Boris Yeltsin last summer, following the devaluation of
the ruble and default on Russian debts by the Kirienko
government, shortly after Russia received its first -- and thus
far last -- tranche of an IMF loan package. The newspaper
suggested that Primakov's decision to send Kirienko indicated
that he had lost faith in his Communist economic chief, Yuri
Maslyukov, who has until now led all debt restructuring
negotiations with the International Monetary Fund for the
Primakov government. Kommersant did not cite a source for this
information, and Agence France Presse reported that the Russian
government press office has refused to comment on the story. If
true, however, it says more about Kirienko than about Primakov.
Two things are certain. Primakov would dearly like to receive
debt relief and additional foreign loans, and he has every reason
to ditch Maslyukov. Russia faces US$17.5 billion in foreign
debt, US$4.5 billion of it owed to the IMF, maturing in 1999.
Russia needs the IMF assistance not only to avoid going bankrupt,
but also to help obtain the release of loans promised by the
Japanese government and the European Bank for Reconstruction and
Development. Primakov's draft 1999 budget, which has already
been approved by the lower house of the Russian Duma, envisions
financing only US$4.5 billion of that debt. The remaining US$13
billion is assumed to be covered by debt restructuring and
additional loans from the IMF or the Group of Seven (G-7) leading
industrialized nations, neither of which have committed to any
such aid.
Western lenders have rejected Primakov's budget as unrealistic,
an easy case to make considering that among its assumptions is 30
percent inflation for 1999. Prices have already risen by 9.8
percent this year. The IMF has criticized planned tax cuts and
spending increases. The budget also calls for greater
protectionism and state control of the economy, a position held
firmly by Primakov and criticized by the IMF. Pessimism over the
prospects for Russia to obtain new funds from the IMF or the G-7,
assumptions on which the Russian budget is based, led Standard
and Poors on February 1 to label Russia's long term foreign
currency debt as being in "selective default."
While the Russian budget is a major stumbling block to continued
assistance from the IMF, it was compiled in part based on
assurances made by Maslyukov that his talks with the IMF were
proceeding successfully. Maslyukov came out of a January 14
meeting in Washington with IMF managing director Michel
Camdessus, insisting that Russia had not come to the end of the
line with the IMF. He later claimed that an IMF delegation,
which arrived in Moscow on January 20, had come to resolve final
technical differences over the 1999 Russian budget. That story
was blown apart by the newspaper Nezavisimaya Gazeta on January
26, when it reported that Maslyukov had lied to Primakov about
holding meetings with the visiting IMF delegation. The paper
claimed that "over the past two weeks, Maslyukov has been
consciously or unconsciously deceiving his own party and the
whole country. He does not want to admit the complete failure of
his recent visit to IMF headquarters in Washington, and has
instead stated several times that Russia still has a good chance
of obtaining IMF credit." Maslyukov's spokesman Anton Surikov
then announced on January 27 that Maslyukov would not hold a
scheduled January 28 meeting with the IMF delegation head as
"there is no subject for a talk yet." Furthermore, Surikov
claimed that Maslyukov did not feel well, traditionally an
ominous sign in Russian politics. But only two days later,
Maslyukov claimed that he expected the IMF to release a new loan
by May.
The IMF delegation left Moscow on February 6, with no scheduled
plans to return, after Russia failed to produce a requested
memorandum justifying its economic forecasts. Maslyukov had
asked on February 3 for a week to 10 days to finish the document,
which Primakov had promised to deliver on February 1 and
Maslyukov had already postponed to February 4. By February 5,
amid rumors that he could be sacked, Maslyukov admitted that
Russia and the IMF were still only "approaching a situation that
is understandable to both sides. Yet problems remain, especially
about some budget numbers."
Signs of Maslyukov's failure were emerging even before the
Nezavisimaya Gazeta article. On January 25, he lashed out at
members of the Kirienko government for allegedly sabotaging his
efforts. "Members of the previous government are extensively
traveling abroad to persuade the West not to lend any money to
this government. This is a disgrace," he said in a lecture at
Moscow State University.
Maslyukov continues to vacillate wildly between blind optimism
over talks with the IMF and assertions that the talks are being
sabotaged by Russian reformists. On February 8, the Russian news
agency ITAR-TASS cited "participants in the Moscow talks" with
the IMF as claiming that the IMF delegation is "inclined to move
forward as fast as possible" and is ready to return to Moscow in
the near future to continue talks. The report, highly
reminiscent of Maslyukov's previous delusions, said that the IMF
delegation would return to Moscow "as soon as it receives and
studies new proposals of the Russian authorities, on which they
have been working very intensively now."
On February 9, Maslyukov told Russia's Interfax news agency that
Camdessus could travel to Moscow between February 18 and 20.
Maslyukov claimed that an IMF delegation would first arrive to
hold talks with Russian specialists for two or three days, after
which "we shall invite Camdessus or (first deputy managing
director Stanley) Fischer." Maslyukov said that talks with the
IMF were "extremely difficult" but claimed "we are moving closer
to one another." Additionally, Maslyukov announced that Russia
was holding discussions with the West about the possibility of
writing off Soviet debts. Maslyukov said that Russia "will not
be able to pay off all the debts, and it is important for us that
some of them are rescheduled, while some are best written off...
The total does not depend on us. For us it is, of course,
important that as much as possible (is written off)."
Optimism aside, on February 10, Maslyukov's spokesman, Anton
Surikov, told Agence France Presse that U.S. officials were
privately pressuring Russia to reverse its positions on a number
of foreign policy issues in return for debt relief. "Officially
the question was not put," said Surikov, "But unofficially they
are seeking changes in Russia's foreign policy stance." Surikov
listed a range of issues from changes in the Anti-Ballistic
Missile treaty to cooperation with Iran, to Moscow's stance on
Kosovo, and claimed that, "If we agree, then they will quickly
agree to a restructuring of foreign debt." However, Surikov
claimed that the U.S. had warned that if Russia did not comply,
the Russian government would fall victim to an organized Russian
media campaign. "They said the government could come under media
pressure. The government would be criticized within the country
for not being able to agree with international financial
organizations," said Surikov.
Surikov later backed down, stating that the pressure had come
from "influential Western analysts" rather than government
officials, according to Interfax. That is not to say that the
U.S. would not take advantage of Russia's economic distress to
attempt to win a few policy concessions. Russian Foreign
Minister Igor Ivanov emerged from a meeting with U.S. Secretary
of State Madeleine Albright last month and insisted that, "We are
not selling out our national interests." Still, besides
demonstrating the degree of frustration, paranoia, and even
hysteria enveloping the Russian economic team, Surikov's comments
about a threatened media campaign lay the groundwork for a
crackdown on Russia's private media, and the handful of wealthy
oligarches that control it, as tools of foreign governments.
So now Primakov has allegedly turned to Kirienko. But while this
may well reflect his disgust with Maslyukov's abysmal
performance, it should not be taken as an embrace by Primakov of
Kirienko's liberal reforms. Primakov can not and will not alter
Russia's new, Communist-drafted economic policies. Kirienko was
driven out by, and Primakov relies on, the communists and
nationalists that dominate the Russian Duma. Reform in Russia is
dead. And therefore, Kirienko's trip to Germany would only occur
out of the vain hope that, since he apparently understands the
Western bankers and speaks their language, perhaps he can
convince them to accept the Russian budget. The message won't
change, but maybe a different messenger can make it more
palatable -- a dubious hope.
Commenting on Maslyukov's efforts to date, reformist Boris
Fyodorov, who was sacked last August as tax chief and Deputy
Prime Minister with the rest of the Kirienko government, said
"Talks with the IMF resemble a conversation between the deaf and
dumb." But it's not a matter of talking the talk. Kirienko
needs to walk the walk, and Primakov can not give him the
authority to negotiate. Kirienko is just a politically correct
messenger and can do nothing to effect the changes in Russian
economic policy necessary to win over the Western bankers. He
was sent, not to deal, but to plead. Even Primakov must know
this, but he has to give it a shot.
The question is, why would Kirienko be willing to go along with
the scheme? He knows he is on what is almost certainly a futile
mission. After all, he understands the fundamental reasons why
the IMF has rejected Maslyukov's efforts to date, and he has
nothing new to offer. Moreover, after having his own reform
efforts vehemently rejected by the communists and nationalists
who now rule Russia, not to mention the masses of Russians who
blame their poverty on Western-oriented reform, Kirienko must
know that a failure to win over the IMF will drive the last nail
in his political coffin. This is a clever scheme on Primakov's
part, throwing final responsibility for Russia's bankruptcy on
the reformists. But by the same token, if he does not at least
try, and negotiations with the IMF finally collapse, Kirienko
knows that any remaining fragments of Russian reform will be
destroyed. Kirienko is going to Germany to beg -- for Russia,
for reform, for himself. We do not envy him.
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