IMF issues ultimatum

THE International Monetary Fund is threatening to withhold all further financial aid to Russia until it receives cast-iron guarantees that the new government will continue with free-market reforms and not retreat to a Soviet-style command economy.

Pressure was growing this weekend for a co-ordinated cut in American and European interest rates as financial markets plunged on fears that the Russian crisis could be the catalyst for world recession.

Michel Camdessus, managing director of the IMF, insisted yesterday that it would still be possible to approve the second tranche of the $22.6bn (pounds 13.5bn) rescue package agreed in July, but only if the Russian Prime Minister, Viktor Chernomyrdin, moves swiftly on market-oriented reforms.

At present, all the evidence is that the new government is being pushed by internal forces in the other direction. Exchange controls have been re-imposed, and there is pressure from some quarters of the government for wholesale nationalisation of banks and other industries.

Mr Camdessus's warnings echo a similar ultimatum from European members of the Group of Seven, who said in an open letter on Friday that continued support for Russia would only be forthcoming if Mr Chernomyrdin was prepared to impose tough economic disciplines.

There is growing concern among Western leaders about the consequences for their own economies and markets of a Russian retreat into isolationism and backward-looking communist policies.

Western stock markets were savaged last week by fears that the Russian crisis, coming on top of the meltdown in the Far East and a general slowdown in the world economy, could lead to a worldwide recession.

If the plunge in world equity values continues, there will be intense pressure, particularly in the US, for interest rate action to stem the crisis. The Federal Reserve cut interest rates in 1987in order to curtail the stock market crash of that year.

Evidence of a slowdown in the world economy could also tip the balance with the Bank of England's Monetary Policy Committee, which has been resisting calls for a cut in British interest rates. The MPC's next formal meeting is not until 9 September. There is pressure for this to be brought forward in view of the crisis in world markets and the renewed strength of the pound.

In the US, Deputy Treasury Secretary Lawrence Summers insisted that the terms of the IMF loan to Russia would have to be renegotiated to take account of changed circumstances. "For Russia to go forward with the IMF would require a new set of understandings, appropriate to current circumstances, about Russian policy actions," he said at the weekend.

Mr Camdessus, who met with Mr Chernomyrdin last Wednesday, said yesterday that he told the acting Prime Minister there would be no international support if Russia imposed state control on its economy and returned to the Soviet system of price and trade controls.

"This international support will wait for clarity of the orientation of the government and the strength of support in parliament for measures, particularly on the revenue side".

Mr Camdessus said that any reversion to command economy policies "would lead to disaster".

The IMF chief made his remarks against a background of growing Republican opposition to any further aid to Russia. According to some estimates, the IMF is perilously close to running out of money after unprecedented calls on reserves over the past year. Many Republicans believe the bailouts in the Far East and Russia to be a waste of money.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor