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Monday, July 13, 1998 Published at 15:08 GMT 16:08 UK

Business: The Economy

Riding to Russia's rescue

The announcement of huge new loans organised by the IMF for Russia have already had their effect on financial markets: Russian government bonds have strengthened. Our economics correspondent James Morgan says the move has in fact raised the stakes for those betting on the success of the country's economic reform programme:

If Russia does at last embark on the structural reforms approved by the IMF the vast loan package should enable the currency to avoid a devaluation and help the government to restructure its own debt. At present it lives on hand-to-mouth borrowings that are constantly at the mercy of market sentiment.

Reserves of gold and foreign exchange have dwindled. But given the chequered history of Russian economic reform programmes the new loans, which will amount to more than $22bn this year and next, represent a huge gamble.

The IMF is staking much of its declining reserves on success. It is in effect offering more money to Moscow to do the things it has so far failed to do.

One surprising feature of the programme is the amount coming from Japan. It is putting up $1.5bn of the total, making it among the largest government contributors: one must assume this is part of a wider piece of financial diplomacy between Washington and Tokyo.

The Russian crisis and that afflicting East Asia are rapidly becoming part of the same global problem. That means the major financial powers are having to struggle with both, and their interactions, at the same time.

The question now is, what will happen when the next crisis emerges in another part of the world?

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