Loans go hand in hand with reform, G7 tells Moscow: Russia will need dollars 34bn this year, IMF says

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The Independent Online
FINANCE ministers of the Group of Seven leading industrial countries yesterday warned top Russian officials that further large loans depended on Moscow pressing ahead with painful economic reform, including measures to boost the growth of the private sector.

The G7 talks with Alexander Shokhin, Russian deputy Prime Minister, and Sergei Dubinin, Finance Minister, came as confidential figures from the International Monetary Fund show Russia will need dollars 34bn (pounds 23.13bn) this year to finance its current account deficit and foreign debt servicing costs.

This is almost double the annual assistance in loans and debt relief granted to Russia in 1992 and 1993. The estimate is based on the assumption that capital flight - which may have eased to some dollars 8bn last year from dollars 15bn in 1992 - will continue to decline.

Michel Camdessus, the IMF's managing director who held talks with the G7 yesterday, hopes to start discussions on large loans for Russia following a dollars 1.5bn credit announced last week. Some dollars 2bn may be lent by the World Bank this year, provided the Russian government finalises plans for a tightening of fiscal policy.

The G7 urged more spending cuts and higher taxes, but especially improved collection of taxes.

IMF officials believe Russia's 1994 financing gap can be bridged if commercial, bank and government creditors agree to reschedule dollars 21bn of debt servicing costs that are due this year.

A confidential IMF report on Russia, which owes dollars 84bn in foreign debts, says that even with effective economic reforms, 'Russia would still face a very high level of external debt service in relation to exports'.

There were signs yesterday that Germany and Britain were softening their resistance to IMF plans to channel finance to Russia and the other former Soviet states as well as the East European countries to bolster their foreign currency reserves. Russia's gross reserves are expected to cover only 1.8 months of imports by the end of this year.

Theo Waigel, the German Finance Minister, meanwhile stressed it was time for other countries to relieve Germany of the burden of financing much of Russia's needs.

But there is still considerable opposition to IMF plans for industrial states to provide this finance directly from their own currency reserves. Under one compromise, newly rich developing states would guarantee an IMF-financed boost to the reserves of the former communist states.

The G7 urged the Russian officials to persist with tight monetary policies that have helped to bring down inflation from 20 per cent to below 10 per cent today. With large- scale privatisation already in place, one senior IMF official said the Russian economy had reached the point of no return. 'It will become a market economy,' the official said. But World Bank officials fear that ownership remains unclear with widespread mafia theft of privatisation vouchers.

The G7 also wants Russia to improve tax collection, establish the rule of commercial law including clear property rights, privatise the energy sector and liberalise trade.