G7 Summit: Russia offered pounds 2bn to help its industry go private

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THE Group of Seven have agreed to offer President Boris Yeltsin a dollars 3bn (pounds 2bn) fund to finance the large-scale privatisation of Russian industry. US officials said yesterday that the fund would be valid for an 18-month period and linked to continued economic reforms. The package represents something of a victory for President Bill Clinton, who asked for a dollars 4bn fund last April, but initially faced strong opposition from other G7 states.

The G7 and EC countries will provide some dollars 500m, of which Britain will contribute dollars 75m, and smaller industrial states will be asked for a further dollars 500m. Already pledged export credits, also worth dollars 500m, will help Russian companies to buy Western capital equipment. The balance of the package will come from the World Bank.

Next year's summit will decide whether to renew the privatisation assistance, which is drawn from the dollars 43bn (that is, dollars 28bn plus dollars 15bn of Western relief on Russian debts unlikely to be repaid) of pledged but untargeted money assembled by the G7 in April.

The privatisation fund is thus drawn from money set aside for Russia by the G7, the IMF and the World Bank. It follows dollars 1.5bn of soft-loan assistance from the IMF announced last week and should help ensure a warm meeting today between the Group and Mr Yeltsin.

'Yeltsin has to be given proper political status,' said Kenneth Clarke, Britain's Chancellor of the Exchequer. 'We must be sensitive to Russia's proper political role.'

The assistance is nevertheless firmly linked to economic reform and will have to be repaid. In a draft of the final declaration, the G7 describe the reforms since last year's Munich summit as courageous. The declaration, to be issued today, urges Russia to intensify efforts to drive down inflation and its budget deficit. It also stresses that industrial privatisation would be more viable if Russia established the right legal framework, to avoid the disputes over ownership common when Eastern Europe began to privatise its industry. Further reforms, the G7 say, should free an additional dollars 5bn to dollars 6bn of loans from the IMF.

To assist Russia's integration into the world economy, the summiteers promise that they will ultimately seek a further relaxation of export controls on Western hi-tech goods to the former Soviet Union.