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Monday, July 13, 1998 Published at 14:15 GMT 15:15 UK

Business: The Economy

Russia gets $22.6bn aid

Russian traders were expecting a big IMF rescue package

US President Clinton has welcomed the International Monetary Fund's decision to give Russia a $22bn loan to help it stabilise its economy.

Mr Clinton stressed the importance of the economic reforms demanded by the IMF as a condition for releasing the money.

The Russian parliament is due to debate the reforms on Wednesday and the Communists, who are in the majority, have already suggested they may block them.

The BBC's Moscow correspondent says the current financial crisis could become a catalyst for the most radical reforms in Russia since the downfall of President Gorbachev.

Anatoly Chubais, the Kremlin's chief negotiator with international financial organisations, said Russia would get $14.8bn from the IMF this year and $7.8bn in 1999.

John Odling-Smee, the IMF's senior negotiator in Moscow, said he had agreed to an immediate and significant rise in aid to Russia.

Of the money pledged for this year, the IMF will provide $12.5bn, the World Bank will give $1.7bn and Japan $600m.

Mr Chubais said Russia would receive $6bn after a meeting of the IMF's ruling body next Monday.

In return the Russian government has promised to stop issuing short-term government bonds, which helped it over recent cash flow problems, but carried very high interest rates which are draining the government's coffers.

The IMF agreed to negotiate a new rescue package after the Russian government promised to carry out tough tax reforms, improve revenue collection and impose strict controls on public spending.

The money will only be released if Russia's parliament, the Duma, approves the reform package later this week when it is meeting for the last time before the summer recess.

President Clinton welcomed the aid package, but said that its success depended on implementing the tough economic reform measures.

"This new programme of Russian policy commitments and international financial support can provide a sound bais for increased stability and confidence," he said in a statement. "Strong implementation by the Russian government of these iimportant reform measures is essential."

Budget discipline

[ image: President Yeltsin urged his government to complete the negotiations as soon as possible.]
President Yeltsin urged his government to complete the negotiations as soon as possible.
The money is intended to help Russia avoid devaluing the rouble after heavy pressure on the country's money markets.

Mr Chubais said the goverment was "convinced that these resources will allow us to significantly strengthen the anti-crisis efforts of the government and will help to stabilise and strengthen the Russian economy."

Mr Odling-Smee said the money should remove pressure on the rouble and keep market reforms on track.

But he said the Russian government was expected to bring its budget deficit down to 5.6% of Gross Domestic Product in 1998 and to 2.6% in 1999.

The latest financial crisis started last May on rumours that Russia might pay its debts by printing money and devaluing the rouble. This led to chaos on the country's financial markets, as investors exchanged their Russian currency for US dollars.

Now both Mr Chubais and Mr Odling-Smee insist that the threat of a rouble devaluation is gone.

Market reaction

David Boren, a debt strategist with Daiwa Europe in London said the package would alleviate all immediate concerns of a devaluation and give Moscow government leaders "the breather that they need in order to improve revenue performance."

Dmitri Kryukov, a trader at Renaissance Capital brokerage in Moscow, called the agreement "good news", but warned that it would have to be seen "whether the excitement about the loan will (outweigh) the other problems."

Russia's financial markets had anticipated the agreement. Even before the package was announced, the index at the Moscow stock market had risen by almost 4%.

IMF running out of money

The IMF's new committment will be a huge drain on the organisation's financial reserves, and it is likely that the Fund will invoke its so-called "General Agreement to Borrow", which allows it to call on funds from its member countries in extraordinary circumstances. The Deputy Managing Director Stanley Fisher said that the IMF's disposable resources were now at their lowest level since the early l980s.

Plans to raise the IMF's capital have been held up in the US Congress where there has strong resistance by the Republican party to giving more money to international organisatiions. President Clinton's spokesman Mike McCurry called for a speady passage of IMF funding authorisation. "We have ample evidence in today's developments that the Republican Congress is being very shortsighted in not moving forward these funding commitments we need to deal with these international economic issues," he commented.

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