IMF set to agree new $4.8bn loan for Russia

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The Independent Online
THE INTERNATIONAL Monetary Fund is expected to agree to a massive new loan to Russia in the wake of the weekend Nato summit and tomorrow's Group of Seven finance ministers' meeting in Washington.

This week is also likely to bring proposals to reform the international financial system, and an agreement by leading industrial nations to increase the amount of debt relief for the poorest countries. The aim is to have specific measures to put to G7 leaders at their annual summit in Cologne in June.

Michel Camdessus, IMF managing director, said there would be good news on the contingent credit line, an overdraft facility for countries meeting certain standards if they face financial market pressures. "We intend to create the right incentives for avoiding crisis."

Mr Camdessus has denied the IMF is under political pressure to bend its lending rules for Russia. But his remarks about the prospect of a new lending agreement have taken a more optimistic turn in the run-up to the current meetings.

The loan is expected to be $4.8bn, enough to allow Russia to pay the interest due this year on its existing $20bn of IMF loans received over the past eight years. This includes last July's emergency package which failed to prevent Russia's default and the devaluation of the rouble the following month.

A resumption of lending, suspended since August, will depend on Russia agreeing to much tighter budget policies and an immediate plan to restructure the banking system.

IMF forecasts last week painted a dismal outlook for the Russian economy. Its "World Economic Outlook" predicts a decline of 7 per cent in GDP in 1999, after a 5 per cent fall last year. Inflation will reach 100 per cent before declining to 20 per cent in 2000 - assuming reforms are implemented and work.

The agendas for the G7 and IMF meetings include reform of the global financial system. In addition, the US Treasury sent a clear signal that emerging economies should not try to hang on to fixed exchange rates when these come under any pressure. The IMF should not lend for the purposes of defending an exchange rate in future, Mr Rubin said.