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Monday, 15 May, 2000, 14:12 GMT 15:12 UK
IMF returns to Russia
The banking system virtually collapsed during the crisis
The banking system virtually collapsed during the crisis
The International Monetary Fund (IMF) is preparing the groundwork for a return to lending to Russia.

A team of financial experts have arrived in Moscow on Monday for talks with the experts preparing the economic programme for the new Russian government.

The initial focus will be on tax reform and the shape of the 2001 budget.

But the talks, if successful, could lead to a plan for a fresh IMF loan to Russia in time for the G8 Summit in Japan in July.

The head of the IMF office in Russia, Martin Gilman, said

"Our understanding is that the new government will be requesting a new arrangement."

The main uncertainty concerns the commitment of new premier Vladimir Putin to economic reform.

The IMF has been encouraging economic reform in Russia since the collapse of communism, but the relationship turned sour after Russia was forced to devalue its currency, the rouble, in August 1998 despite massive IMF aid.

Russia still owes the IMF $13.4bn, and any fresh loans would go towards reducing these repayments.

But many US politicians have opposed further lending to Russia after it was revealed that the Russian Central Bank had lied to the IMF about the state of its reserves during the crisis.

The IMF's has officially suspended a $4.5bn loan package after after failing to reach agreement with Boris Yeltsin's regime over the budget and economic reform.

Russia on the mend

Mr Putin has inherited an improving economy, with growth of 6.8% in the first quarter, which has reduced the urgency of an IMF deal.

The economy has been boosted by higher gas and oil prices, which have led to a big current account surplus.

The budget is also likely to be in surplus, which will ease pressure to meet the IMF's previous targets.

However, the Fund is likely to insist on reform of the bankruptcy laws and equal tax treatment for the big utilities.

That could lead to clashes with some of the oligarchs close to Mr Putin, who may still expect privileged treatment in return for providing support during his election campaign.

The raid by the tax police on a prominent opponent of Mr Putin's last week has raised questions about how even-handed he intends to be.

Ukraine next

The IMF's East European team, headed by John Odling-Smee, will also visit the Ukraine the following week.

The Ukraine's IMF loan of $2.6bn has also been suspended amid allegations of central bank irregularities.

This has caused greater economic difficulties, as the Ukraine has been unable to restructure its other international debt without a deal with the IMF.

The Fund wants further reform of the agricultural and electricity sectors, a balanced budget and a more open system of privatisation.

IMF reform drive

Meanwhile, the new head of the IMF, Horst Koehler, is beginning a tour of Latin America designed to drum up support for further IMF reform.

He will meet the Brazilian president, Fernando Henrique Cardoso at the Rio headquarters of the National Development Bank on Monday, before travelling to Argentina, Honduras, and Mexico.

The Russian experience has led to calls for a scaling back of the IMF's role in world financial crises, especially by critics in the United States.

Mr Koehler, in turn, is keen to give the developing market countries a bigger role in the running of the IMF.

"He is particularly interested in the views of emerging market countries on the role of the IMF, which will be an important input in the consideration of reform of the institution," the Fund said.

Most developing countries would be likely to back an increased role for the IMF.

Brazil was the first country to receive money from the IMF in advance of a crisis in order to stabilise its currency - which nevertheless crashed in January 1999, leading to high interest rates which are still slowing down the economy.

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See also:

10 May 00 | Business
Can we trust the market?
23 Mar 00 | Business
Growing row over IMF role
22 Apr 99 | The Economy
US calls for limits on IMF aid
24 Sep 99 | The Economy
Russia: The IMF's biggest failure
24 Mar 00 | Business
New IMF chief pledges reform
13 Apr 00 | Business Basics
The IMF and World Bank
28 Mar 00 | Business
Russia's new oligarchs
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