IMF chief recommends Russia has dollars 1bn loan: G7 summit to discuss Moscow's plight and its pledge on free market reform

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The Independent Online
THE HEAD of the International Monetary Fund (IMF) announced yesterday that he will recommend an unprecedented dollars 1bn ( pounds 526m) loan to Russia after Moscow agreed to strengthen its free market economic reforms.

A joint statement issued in Moscow by Michel Camdessus, IMF managing director, and Yegor Gaidar, the Russian Prime Minister-designate in charge of the reforms, came as leaders of the Group of Seven rich industrial states prepared to debate Russia's deepening economic plight at a three-day summit in Munich, starting today. Boris Yeltsin, the Russian President, arrives tomorrow to seek further assistance.

The statement said Mr Camdessus would recommend releasing the first tranche of dollars 24bn ( pounds 12.6bn) of urgently needed credits, adding: 'It is with satisfaction that we can declare we have reached agreement on a number of measures which we think will strengthen the economic reforms and the Russian government's stabilization programme.'

The dollars 24bn package includes dollars 4.5bn ( pounds 2.4bn) from the IMF and the World Bank, of which dollars 1bn was agreed yesterday, a dollars 6bn ( pounds 3.2bn) Rouble Stabilisation Fund, unlikely to be released until late in 1993, and dollars 11bn ( pounds 5.8bn) of export credits and food aid of which dollars 4.5bn has been dispersed.

Mr Camdessus has come under heavy G7 pressure to make an advance downpayment despite indications that the reforms were going into reverse. He said Russia had agreed to unspecified measures which were 'a considerable step forward' in the economic reforms, and would 'ward off' the threat of hyper-inflation.

The biggest dispute between Moscow and the IMF came when Russia backed down on a promise to free oil prices to world levels. It was far from clear yesterday that Russia had succumbed to IMF pressure on that question.

On Saturday, President Yeltsin had said some IMF conditions were too harsh. He said Russia would not humble itself before the West and would do without the aid package unless some demands were dropped. Freeing energy prices could cause another round of price increases and extra hardship to factories that are rapidly going bust. 'Would the people hold out? They would not,' Mr Yeltsin told reporters at the Kremlin at the weekend.

The IMF has also been worried by a flood of soft credits to big Russian enterprises which are so inefficient that they would go under if operating in a free market. It has also pressed Russia to rein in a sharp widening of its budget deficit, heading towards 15 per cent of the country's output.

A senior G7 official said yesterday that the West understood Mr Yeltsin's tough task. 'Next winter will be worse than the last one,' he said. 'Could Yeltsin be replaced? It's a very risky process so if we have to pour a few billions down a black hole, we'll do it.'

The IMF loan virtually guarantees that Mr Yeltsin, who will hold talks with the leaders in a post- summit session on Wednesday, can claim his summit attendance a success. It is also likely to clear the way for a moratorium, of at least two years, on the former Soviet Union's dollars 74bn ( pounds 38.9bn) of foreign debt, covering both debt principal and interest repayments.

The Russian President faces a rough ride in coming talks with leaders of Britain, Canada, Germany, France, Italy, Japan and the United States. He will be pressed hard to accelerate reforms, including speeding up privatisation.

Japan indicated yesterday that it would hold back from further substantial contributions to financial assistance to Russia. A senior Japanese official said additional aid was unlikely as long as Russia continued to hold four islands off Japan's northern coast, seized by Stalin after the Japanese surrender at the end of the Second World War. The official made clear, however, that Japan would continue to participate in the dollars 24bn assistance package.

Yesterday Helmut Kohl, the German Chancellor, delivered a veiled attack on Mr Yeltsin's hard stand before the meeting. 'If you do things by force, you always fail . . . No one here is going to set conditions to others,' he said in a radio interview.

Mr Kohl also played down hopes that the summit could promote world growth by lowering interest rates. The leaders, who begin their talks today, will review the flagging world recovery and the deadlocked Uruguay Round, aimed at liberalising international trade, but with little hope of a breakthrough. Douglas Hurd, the Foreign Secretary, will meet James Baker, the US Secretary of State, today to discuss the issue, in Mr Hurd's capacity as President of the European Community's council of ministers.

The summit will also discuss British proposals to follow up the Earth Summit on climate change, conservation of forests and preservation of endangered species. Yugoslavia was added to the agenda last night.

Italy yesterday raised its key interest rate by 1 percentage point, to 13 per cent. The move, aimed at underpinning the lira, illustrates the limits on co-ordinated measures at Munich to back economic growth. Last night German officials played down hopes that Germany might ease monetary policy, which would help Britain to lower its rates to promote recovery.

Report, page 9

Italy yesterday raised its key interest rate by 1 percentage point, to 13 per cent. The move, aimed at underpinning the lira, illustrates the limits on co-ordinated measures at Munich to back economic growth. Last night German officials played down hopes that Germany might ease monetary policy, which would help Britain to lower its rates to promote recovery.

Report, page 9

Summit reports, page 9

Leading article, page 20

William Rees-Mogg, page 21

Gavyn Davies, page 23

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