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Monday, March 29, 1999 Published at 11:26 GMT 12:26 UK

Business: The Economy

Russia and IMF agree loan plan

Michel Camdessus and Yevgeny Primakov have a deal

The International Monetary Fund (IMF) and Russia have agreed on the broad terms for a new economic plan and more emergency loans for the country.

However, the timing and amount of financial assistance is yet to be worked out.

Russia's prime minister, Yevgeny Primakov, told a news conference that he and IMF chief Michel Camdessus had signed a communique setting out the loan agreement: "I can say we have agreed about cooperation, agreed that we will be offered a loan and that next week a full mission will come which will complete the preparation of documents.

[ 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
An IMF spokesman later confirmed: "We have reached an agreement on a broad framework but details must be filled in."

Interfax news agency reported that sources close to the negotiations say the IMF plans to lend $4.8bn to Russia, exactly the amount the country is due to to repay to the IMF this year.

However, it appears the size of the loan bail-out will not be decided until the IMF board meets after another delegation of its officials visits Moscow next month.

Alexander Zhukov, head of the parliamentary budget and finance committee in the Duma, said he could not see any money forthcoming before the end of May at the earliest.

Christopher Weafer, Troika Dialogue Bank: Main issue is effective tax collection
Mr Primakov says the loans will be dependent on his delivering a budget surplus of 2% in 1999, although this calculation would exclude interest payments on foreign debts. Mr Zhukov said this would be difficult and meant the government would have to find an extra 60bn roubles ($2.5bn), probably from higher taxes.

Loan crucial

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.

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.

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, $4.8bn to the IMF itself.

Andrei Ivanov, economic analyst with Troika Dialog in Moscow, said on Monday: "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."

Delayed talks

[ 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
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 go to Moscow instead.

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.

A Kremlin spokesman said Mr Camdessus had talked to President Yeltsin on the telephone during the negotiations. He also met members of the opposition-led State Duma lower house of parliament, including Communist Party head Gennady Zyuganov.

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