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Thursday, September 23, 1999 Published at 20:45 GMT 21:45 UK


Business: The Economy

Russia: The IMF's biggest failure

Millions of people in Russia are living in poverty

Russia is the largest borrower from the International Monetary Fund (IMF), but now controversy over corruption threatens to deter future loans. BBC International Business Correspondent Peter Morgan examines what the IMF has achieved so far.
IMF under scrutiny
  • Reforming the IMF
  • IMF vs. Private sector
  • Russia: IMF's Biggest Failure
  • Currency cooperation
  • The deal the International Monetary Fund strikes with its client states is a pretty simple one.


    The BBC's Peter Morgan:"The vast majority of people are just scraping by"
    It lends money in return for reforms which will bring the economy of the borrower closer into line with standards of good practice in the industrialised world.

    It could insist, for example, that inflation is reduced, banking standards are improved, tax systems are changed and so on. It's a pretty straightforward carrot and stick arrangement. The carrot is the cash, the stick the IMF's insistence on economic rigour.


    [ image: Russia has not been able to ivnest in its vast natural resources]
    Russia has not been able to ivnest in its vast natural resources
    The problem in Russia is that the Government has swallowed the carrot, but ignored the stick. The IMF has extended loans of around $20bn, making Russia its biggest borrower, and yet reforms have been slight to non-existent, and great chunks of Russia's public and private sectors continue to be run by crooks.

    Worse still, Russia's debts to the IMF are now so big that the only way to ensure repayment is to keep lending more. The $4.5bn programme agreed on this summer will go almost entirely towards meeting repayments on previous IMF loans.

    All this would be embarrassing enough in the only conclusion being drawn was that the IMF has painted itself into a tricky corner.

    Like an addictive drug

    Unfortunately for the Fund it doesn't stop there. It has been accused of political meddling, of incompetence, and of actually making Russia's economic problems worse.


    [ image: Consumers have suffered from shortages and corruption]
    Consumers have suffered from shortages and corruption
    Star witness for the prosecution is Boris Fedorov. He has been a Minister four times in President Boris Yeltsin's fast changing administrations. This year, as Economics Minister he was responsible for tax collection.

    He tells me that IMF money has been an addictive drug for the Russian economy. With each new injection the Government sees financial crisis averted, and abandons any attempt at serious reform.

    He makes the intriguing suggestion that, instead of setting financial targets, the IMF should set goals for convictions for corruption, and should release money in proportion to the number of bent officials and gangsters who are locked up.

    Backing Yeltsin

    The second charge, made regularly in the pages of the Moscow Times, is that the IMF has effectively backed Boris Yeltsin, closing its eyes to the lack of reform and forking out huge wads of money any time their man is in trouble.

    True or not, this opinion is widely held, and with Presidential elections due next year it could seriously damage relations between the incoming President and the IMF with its Western backers.

    Garfield Reynolds, the Business Editor of the Moscow Times says he's racked his brain to come up with an example of any positive achievement of the IMF in Russia, but can't come up with anything.

    IMF version

    The IMF, of course, vigorously disputes the version of recent history being described by its detractors.

    Martin Gilman, the head of the IMF in Moscow, invites me to imagine what state Russia would have been in had it not been for the IMF's billions.

    Although a plausible defence the "it could have been a whole lot worse" argument is by its very nature difficult to prove.

    He denies any political agenda on the part of the IMF, and makes a point which is undeniably true.

    That whatever pressure the IMF may bring to bear, without the political will to introduce reform from the Duma and from the President, no change for the better will ever be achieved.

    Furthermore the IMF has undoubtedly been a mechanism through which Russia has engaged with the West.

    For an awesome nuclear power, which lives in the constant shadow of anarchy this, can be no bad thing.

    Global geo-politics

    But it is wrong to think of Russia, the IMF and economic reform purely in terms of global geo-politics. It is also a matter of bread and butter, warmth and shelter for tens of millions of ordinary people.

    The World Bank estimates around 60 million Russians have incomes of less than 800 roubles ($32) a month. More than 20 million live in extreme poverty (with incomes under 400 roubles, or $16 a month).

    All the evidence shows that a successful market economy can only be built upon firm foundations of law and order.

    If protection racketeering, tax fraud, bribery and corruption are allowed to flourish the crooks will get rich, and the weak will stay poor.

    More than $20bn IMF dollars have failed to prevent Russia from retaining the dubious distinction of being one of the most corrupt nations on earth, in which tens of millions of people are struggling to survive.

    By any analysis that is not much of a return on our investment.



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