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Wednesday, July 28, 1999 Published at 23:34 GMT 00:34 UK

Business: The Economy

IMF loan clears way for Russian debt talks

Many banks went under as people queued for money

Russia has begun talks aimed at rescheduling some $140bn in international debts following approval of a fresh loan from the International Monetary Fund (IMF).

Chief Russian negotiator Mikhail Zadornov arrived in Paris on Thursday for talks with Western governments about $8bn in loans to the former Soviet Union which fall due in the next 18 months.

"I am confident that we will receive significant debt relief within a matter of days," he said.

Russia would like to write off the entire sum, but Germany has indicated that this is not acceptable.

The discussions in Paris will be followed by talks in London with Russia seeking debt relief from its commercial creditors.

And Russia says it will announce plans next month on how it plans to restructure the $40bn in domestic government debt that was frozen last year.

Foreign banks are still angry at their treatment when the rouble was devalued, and may prove less sympathetic to any further renegotiation of foreign debt payments.

But Mr Zadornov was hopeful that the IMF deal would ultimately unlock fresh foreign investment in Russia.

"The most important thing is that the international community has expressed its support in our government and central bank policies ... this should translate into renewed confidence by foreign investors," he said.

Much relief

On Wednesday the IMF approved a $4.5bn financial package to Russia, $640m of it to be made available immediately.

The BBC's Paul Reynolds: The deal marks another stage in the stabilisation of Russia's relations with the West
The rest of the money will be paid out in six equal instalments and has been tied to strict conditions on economic reform.

This is the first such loan to Russia since it devalued the rouble and suspended payment on some domestic and international government bonds last August - just after receiving a similar IMF package.

The pay-out also means that other money from the World Bank and Japan will be unlocked, and that will provide the funds to pay for some of Russia's overall debt.

[ image: Russia's currency was sharply devalued]
Russia's currency was sharply devalued
Russian Prime Minister Sergei Stepashin had travelled to Washington on Tuesday to try to convince his critics that Russia would not simply mis-spend any further assistance.

He emphasised his commitment to financial reform and said that Russians understood there was no alternative to the policies agreed with the IMF.

Before the remaining payments are released, the IMF will make quarterly reviews of Russia's economic performance to assess whether it meets structural benchmarks.

The IMF said in a statement: "In view of Russia's extremely difficult economic and financial situation, the directors underscored the need for full and timely implementation of the envisaged reform measures."

Charles Blitzer, former World Bank chief economist in Moscow, on why Russia cannot service its debts
These measures include a package of laws to increase government revenue, combat corruption and reform the banking system. Russia's lower house of parliament, the Duma, has already approved some of these steps.

Russia will not actually see any of the money from the new package, however.

Instead the first instalment will be transferred from one of the IMF's accounts to another, allowing Russia to avoid defaulting on more than $5bn it owes to the IMF both this year and next.

[ image: The IMF's credibility was dented by the Russian crisis]
The IMF's credibility was dented by the Russian crisis
BBC Business Correspondent Richard Quest says the IMF has been concerned about poor Russian tax collection and other calls on its budget, hence the reluctance to actually hand over any money in case it disappears elsewhere.

The IMF also criticised the Russian central bank for setting up an offshore company to manage some of Russia's foreign exchange reserves, saying they were given misleading information about the state of the country's finances as a result.

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