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Monday, March 29, 1999 Published at 07:41 GMT

Business: The Economy

Russia talks to the IMF again

Michel Camdessus and Yevgeny Primakov met at an informal dinner

Russia could soon get fresh emergency loans from the International Monetary Fund (IMF), according to the country's First Deputy Prime Minister Yuri Maslyukov, who is in charge of economic policy.

Christopher Weafer, Troika Dialogue Bank: Main issue is effective tax collection
After meeting the IMF's Managing Director Michel Camdessus, Mr Maslyukov said there were only "slight differences" remaining that could be overcome by Monday at the latest.

The IMF suspended its multi-billion dollar loan programme in August last year, when Russia's economy went into freefall following the devaluation of its currency, the rouble. Since then the rouble has lost about 75% of its value.

[ image: The rouble has lost 75% of its value since August last year]
The rouble has lost 75% of its value since August last year
Any delay in IMF aid could have serious consequences for the country's financial system, including further defaults on Russia's foreign debts. The country has a debt burden of around $140bn and IMF loans are seen as critical just to keep up with interest payments.

Delayed talks

Russian officials wanted to negotiate an aid deal last week, but the talks never went ahead because of the sudden cancellation of Prime Minister Yevgeny Primakov's visit to Washington over the Kosovo crisis.

However, Mr Camdessus agreed to come to Moscow instead.

Mr Camdessus said both sides would "try to achieve a solid and credible agreement".

The IMF chief is expected to meet the Russian President Boris Yeltsin on Monday.

Political calculations

Russian opposition to Nato airstrikes, as long as it is confined to verbal condemnation, is not believed to stand in the way of a deal.

The US government has stressed that Russia's eligibility for aid should depend purely on the progress of economic reform.

"The IMF is not a political body and its lending decisions should be based on purely economic considerations," said Peter Botoucharov of BancBoston Securities.

But political opponents in both Russia and the United States are increasing their opposition to any deal.

Economic problems

[ image: IMF managing director Michel  Camdessus and Russia's Finance Minister Mikhail Zadornov]
IMF managing director Michel Camdessus and Russia's Finance Minister Mikhail Zadornov
The government is hoping that IMF aid will fill a gaping hole in its 1999 budget plans.

Mr Primakov said he would not approach the IMF as a beggar: "Somebody wants to make it look that Russia is standing in front of the IMF with a stretched arm. Nothing of the kind. We are developing the relations with the organisation that was created for supporting other states."

But he made it clear that he expected his meeting with Mr Camdessus to be "fruitful".

Rouble under pressure

The head of the Russian central bank, Victor Gerashchenko, has said that without the aid Russia has little chance of paying more than half of the $17.5bn in interest on foreign debts that it owes this year.

Last week an IMF team returned from Moscow without an agreement to recommend fresh loans, but a spokesman hinted that the talks had made some progress.

By Friday the rouble had weakened further and it is now trading at around 27 to the US dollar. According to Central Bank chairman Viktor Gerashchenko the Russian rouble is experiencing tremendous speculative pressure and only IMF help will help the currency to stay within "reasonable parameters".

Andrei Ivanov, economic analyst with Troika Dialog in Moscow, said: "It seems that only a positive outcome of (International Monetary Fund) Managing Director Michel Camdessus' visit to Moscow this Saturday can halt the fast depreciation of the rouble."

Wintering out

The Russian economy has survived the winter in better shape than many people expected, but it still faces conflicting demands from foreign creditors, pensioners and industrialists.

The government has said it is determined to cover the backlog of people who have not been paid or received pensions, but it may be forced to print money to cover the budget shortfall.

Industrialists remain reluctant to pay their taxes to a state that is widely seen as corrupt and inefficient.

The Central Bank has admitted that it does not have enough foreign currency reserves to revive the banking sector which needs 100bn roubles ($4bn) for recapitalisation alone.

Most observers expect inflation and unemployment to rise sharply by the summer, especially if no foreign aid for the budget deficit is forthcoming.

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