West tries to relaunch Russian aid package

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The Independent Online
PRESIDENT Clinton's grand gestures of US support for Boris Yeltsin at this weekend's Vancouver Summit are intended to relaunch the campaign for a Russian aid package.

The West has already made a significant start. The Paris Club of Western creditor governments agreed on Friday to stretch out repayments of the former Soviet Union's dollars 80bn ( pounds 53bn) of foreign debt - much of it to the German government and the country's commercial banks.

Because of a short-sighted borrowing programme by Mikhail Gorbachev, Russia, which has assumed responsibility for Soviet debts, owes some dollars 38bn in interest and principal repayments in 1993 and 1994. The Paris Club is prepared to stretch out repayments of some dollars 15bn over 10 years, with a five-year moratorium on principal repayments. The hope is that commercial bank creditors would subsequently follow suit.

While a rescheduling deal is the most high-profile form of assistance the West can immediately offer, it is largely hypothetical help. Russia is in no position to repay the loans. But the Paris Club hopes it will encourage President Yeltsin to move towards an agreement with the International Monetary Fund.

Beyond that, President Clinton wants the Group of Seven to approve IMF loans to Russia of some dollars 7bn to dollars 10bn - which could be used for key imports for investment in energy and agriculture. If these two huge sectors become efficient, they could go a long way to plugging the balance of payments deficit caused by a fall in oil exports and mounting food imports. In theory, Russia is entitled to borrow as much dollars 15bn from the IMF. And assistance could be buttressed by a dollars 23bn pool of money, known as the General Agreement to Borrow, drawn from the currency reserves of leading Western countries and Saudi Arabia. That money is available to the IMF to counter developments that might impair the international monetary system. Just as last year, the GAB funds could be used to stabilise the rouble, now at record lows against the dollar.

The problem is that no basis for stabilisation exists. As long as the independent central bank, under Viktor Geraschenko, continues to satisfy the insatiable appetite of the military industrial complex for rouble credits, hyperinflation remains a real threat. And the more the central bank pumps up the money supply, the more the government is forced to compensate the population for sharp price rises.

The G7 countries hope that President Yeltsin will strengthen his position in the forthcoming referendum and begin to push through reforms such as curbing the money supply and freeing energy prices to world levels - developments that could form the basis for a deal with the IMF.

In the meantime, plans are taking shape for the World Bank to assist industrial restructuring - such as conversion of military plants to civilian use, and help for the inefficient energy and agricultural sectors. Some dollars 2bn in loans are planned this year and the Bank hopes to be lending Moscow some dollars 4.5-5bn annually by 1995. The World Bank and the European Bank for Reconstruction and Development have also been charged with preparing plans for lending to small and medium-sized businesses.

Despite budgetary problems that prevent most G7 countries from advancing large-scale bilateral aid, some are preparing additional assistance. Germany plans further funds to rehouse the Russian military returning from eastern Europe because, as one German official put it, 'an unhappy army is a time bomb'. The US is readying more than dollars 1bn in grant aid.

The eventual shape of Western aid may not begin to emerge until late this month, at the IMF/World Bank semi- annual meetings. Meanwhile, the talk of help for Russia has sparked calls for assistance from most other former Soviet republics.

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