Why resume lending?: Russia's current economic policies are deserving of IMF support

• Pages: 273-274

Page 273

Since joining the IMF in 1992, Russia has made progress in moving from central planning to a market-based economy, with the support of the IMF and the international community. It is a reform effort whose scale and ambition have few parallels, and whose outcome is of vital importance both for the people of Russia and for the rest of the world.

In view of what is at stake, the relationship between Russia and the IMF is also of vital importance. It is one that has, over the past seven years, been marked by both successes and disappointments. As Russia moves forward with the backing of a new IMF loan, there are reasons to look to the future with some hope.

Nevertheless, Russia's relations with the IMF are passing through a period of intense public scrutiny, and it is necessary to answer the many voices questioning the purpose of current lending to Moscow, the record of earlier programs, and the use of previous IMF loans.

Why did the IMF resume lending to Russia in July 1999 (see IMF Survey, August 2, 1999, page 247)? For the past several months Russia has been carrying out economic policies that deserve support: a cautious monetary policy, a reduction in the fiscal deficit, and progress in righting the reversals in structural reforms that occurred after August 1998. Moreover, the government, the central bank, Page 274 and the parliament had implemented many key macroeconomic and reform measures in advance of the latest loan, and more are scheduled over the period of the program. All this explains why on July 28 the Executive Board, representing the IMF's 182 member countries, unanimously approved an SDR 3.3 billion (about $4.5 billion) Stand-By credit over 17 months. The program is available on the IMF website (www.imf.org).

In most respects, the program, which was adopted by both the Primakov and Stepashin governments and has been broadly endorsed by Prime Minister Vladimir Putin, contains updated versions of the measures in the July 1998 program of the Kiriyenko government that was interrupted in August 1998.

Need to reform

Even when the program is implemented, there will, of course, remain the need for radical reforms, including additional steps to overcome nonpayment and corruption, impose the rule of law, create a favorable climate for private business, and reform key sectors such as agriculture, energy, and social services. The IMF will continue to urge Russia to make more progress...