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Friday, April 30, 1999 Published at 12:29 GMT 13:29 UK

Business: The Economy

Russia's aid deal faces stormy passage

Russia's economy cannot deliver adequate supplies to fill the shops

Communist politicians in Russia could delay the long-awaited completion of the International Monetary Fund's $4.5bn aid package for the country's ailing economy.

The negotiations have been dragging on for months with Russia's domestic political disputes hampering any final deal.

Now, Russia's Communist leader Gennadiy Zyuganov says he will not back it.

He says the IMF's proposal to raise oil excise duties would trigger a rise in food prices of approximately 40%, which he estimated would put another 10 million people below the poverty line.

He accused the IMF of being out of touch and making unrealistic demands.

More money needed

[ image: Street vending: One way of surviving Russia's hard times]
Street vending: One way of surviving Russia's hard times
The $4.5bn the fund is offering is much less than the Russians were hoping for, and is hedged with strict conditions on economic reform, which the country will struggle to meet.

The money is desperately needed by Russia, whose economy is threatened with meltdown and who cannot pay many of its international debts.

Aid to Russia was suspended in August last year, when Russia defaulted on government loans and devalued its currency.

An IMF deal with Russia has been expected since January, and was confirmed in principle in March when Mr Camdessus went to Moscow.

The repeated failure to finalise the package is because of the domestic political difficulties in Russia, which show no sign of abating.

Positive sign

Russia's First Deputy Prime Minister Yuri Masylukov said he expected parliament to approve the proposals agreed by the government and the International Monetary Fund.

Many of these measures will need Duma approval but the lower house, dominated by communists and nationalists, has resisted passing laws that it sees as emanating from the IMF.

Tough conditions

Michel Camdessus, the IMF's managing director, said that the fund would only release the money once the government had implemented fiscal and banking measures.

And he said he would only recommend payment of $3bn this year, 50% lower than Russia's $4.5bn request.

[ image: Russian officials may have stashed IMF loans in the Channel Islands]
Russian officials may have stashed IMF loans in the Channel Islands
Russia's Parliament, the Duma, is in a fractious mood and the strict reform measures - including the closure of many banks which have been technically bankrupt since the August crisis - will be hotly contested.

Corruption fears

The IMF is also concerned that some of its previous loans may have been illegally siphoned off by Russia's Central Bank to an offshore company based in the Channel Islands.

Mr Camdessus said that the IMF was demanding "a full explanation of the management of the reserves of the Central Bank of Russia and the use of disbursements from the IMF over the last few years".

Central Bank head Viktor Gerashchenko has denied any wrongdoing, but the IMF is still awaiting a report from accountants PricewaterhouseCoopers.

Debts remain

Unless Russia gets the IMF aid, which will also trigger $2.3bn in lending from the World Bank, it will be unable to pay its international debts to foreign banks and governments.

Mr Gerashchenko said that subject to parliamentary approval Russia would pay the $2.5bn that was due in interest in the second quarter of 1999.

Russia is trying to reschedule $100bn of Soviet-era debts, and has told international banks holding government bonds that they can only expect to get a small proportion of their money back.

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