IMF on line to help Boris fix it

To Russia with cash: Concerns over pre-election spending spree will not prevent Yeltsin getting the money he needs
Click to follow
The Independent Online
Officials from the International Monetary Fund are preparing to approve a crucial loan to Russia of between $9bn and $13bn, despite concerns that President Boris Yeltsin is embarking on a spending spree aimed at securing his re-election in June, according to sources close to the negotiations.

Final details of the loan are being hammered out during a four-day visit to Moscow by the IMF's director, Michel Cam-dessus, but he is widely expected to recommend that the fund pays up. "It will go ahead,'' said one economist close to the talks. Approval would mean that the IMF has not been deterred by the rash of extravagant pledges made by Mr Yeltsin, which have aroused fears that - after a period of rigorous monetary control - the Kremlin is loosening the purse-strings and will send inflation spiralling back to the four-figure rate of four years ago. Some analysts calculate that the President's recent promises to miners, pensioners, students, victims of the Chechen war, and others add up to almost $300 (pounds 200) a head for every voter.

The loan, one of the largest in the IMF's history, will be over three years and - like Russia's previous $6.3bn IMF loan - subject to stringent monthly reviews. Sources said it would be paid in tranches, and could be cancelled if Moscow failed to meet agreed targets - a situation that some economists predict could arise if the Communists take over and spend heavily on restoring social welfare.

Whether the IMF would be prepared to intervene before then to rein in a spendthrift Mr Yeltsin seems doubtful, not least because it would take time before the impact of a surge in spending filtered through the economy.

There is also a political issue at stake. The IMF routinely insists that it is only influenced by politics in so far as it affects a country's ability to fulfil its economic commitments. Yet it would not relish the wrath that any move to cancel the loan before the June presidential elections would cause in the West, where Mr Yeltsin enjoys widespread support. "How do you think Clinton, Kohl or Major would react if the fund suddenly threatened to cancel, say, a week before the the election?" asked one analyst.

The deal has long been set at $9bn but yesterday Russia's new economics minister, Vladimir Kadannikov, said it could be as high as $13bn. Its completion would mark the end of difficult negotiations that have been complicated by the absence of a dependable financial framework. The IMF loan is - at least, technically speaking - meant to help bridge the deficit built into Russia's 1996 budget, agreed by the State Duma (lower house of parliament). However, this is a very wobbly figure: the government's calculations are based on an inflation rate of an unrealistically low 1.9 per cent a month (nearly half the current rate), and on revenue targets which fail to pay enough heed to Russia's endemic inability to collect tax.

Mr Yeltsin - still aglow with the praise lavished on him during a visit by Helmut Kohl, who overcame his initial caution and gave him whole-hearted support - yesterday sought to embark on another episode of Boris'll Fix It. He tackled another source of widespread resentment that threatens his re-election prospects: unpaid pensions and salaries owed to millions of Russians. After promising to solve the issue without using any foreign aid or printing any extra money, he set about sacking a handful of officials.