Russia and the International Monetary Fund signed an agreement yesterday that paves the way for a $6.25bn (£4bn) loan intended to keep alive the faltering process of Russian economic reform. The agreement was signed in Moscow by the Russian Prime Minister, Viktor Chernomyrdin, and the IMF managing director, Michel Camdessus, and is expected to receive approval from the IMF board of directors next month.
The IMF has by no means signed a blank cheque for Russia. To qualify for the loan, the Kremlin has had to agree to eliminating budget imbalances, liberalising foreign trade, simplifying tariffs and scrapping tax exemptions for big businesses.
All of those concessions provide ammunition for conservative nationalist and Communist critics of President Boris Yeltsin's administration. They are seeking to make political capital out of the allegation that Russia has handed effective control of its economic policy to the IMF and Western governments and financial institutions.
However, the Russian government recognised that it had little choice but to agree to the IMF conditions if it wanted to reopen talks with its foreign creditors on rescheduling Russia's foreign debt. That debt now totals more than $120bn, of which about one third is held by the Paris Club of government creditors.
Some Western economists doubt that Russia will be able to meet its payments on this debt in the next two to three years. But they say that if Russia adheres to the strict IMF loan conditions announced yesterday, there is a chance that the Paris Club will consider writing off some of Russia's debt. "The IMF would very much like to see Russia have a multi-year framework for payments of its debts. The IMF is ready to work with the Paris Club and Russia to arrive at such a solution," Mr Camdessus said.
Whether the Russian government has the political will or financial strength to stick to the terms of the IMF loan is an open question. There are already grave doubts about the government's ability to control inflation this year or to prevent the rouble from collapsing.
The government set a target of 3 per cent for average monthly inflation in 1995, but in January the monthly rate ran at 17.8 per cent. The government calculated its 1995 budget deficit on the assumption that the rouble would average 4,400 against the dollar over the year, but already the rouble has crashed to 4,650.
State industries and the powerful Communist-aligned collective farm lobby are in no mood to be denied credits, which the government will have to refuse them if it is to meet the IMF conditions. The success of these pressure groups in extracting credits in 1994 was one of the factors behind the resurgence of inflation last autumn.
It will be especially difficult to deny them funds this year, as parliamentary elections are due in December and presidential elections in June 1996.