IMF backs Russian reform

Two years ago financial panic struck Russia

The International Monetary Fund says the Russian economic recovery is impressive and set to continue, paving the way for fresh loans in the autumn.

The report, from an IMF mission that has just returned from Moscow, said that as long as the government carried out its commitment to structural reforms, such as an improved tax system, the prospects for economic growth were good.

HIgher oil prices have boosted the economy

"The mission concluded that, provided these challenges were effectively addressed, the outlook was for continued growth and progress in lowering inflation," the IMF said.

Russian officials say the economy is set to grow by 5% this year, after an increase of 3.2% in 1999.

And inflation is slowing down, with the month-on-month increase in prices down to 2.0% in July compared to 2.2% in June.

IMF loan

But the IMF warned that the boom in exports could still destabilise the economy, by creating imbalances between industries and stoking inflation.

The devaluation of the rouble, and the high prices for oil and other commodities, have given Russia a huge trade surplus.

The IMF said macroeconomic policies in the short-term had to be geared towards preventing the exceptionally strong balance of payments from jeopardising the recovery or triggering renewed inflationary pressures.

The positive tone of the IMF's remarks, which are expected to be confirmed in September during its regular review of Russia's economy, suggest that the organisation will renew its loans to the Moscow government.

The IMF suspended its lending to Russia last year, amid concern about economic mismanagement by the Yeltsin government and the Russian central bank.

Earlier in the month President Putin pledged to cut taxes and root out corruption in his first state of the nation address to the Duma.

The World Bank has already begun a limited resumption of lending to Russia.

Debt relief

Russia is hoping to gain a measure of relief from the burden of its international debts at the G8 summit of world leaders in Okinawa, which begins on Friday.

Russia has already reached agreement with private sector lenders to reschedule some $140bn of foreign debt, some of which was left over from the Soviet era.

Now it wants to spread out the payments on debts owed to Western governments, in a negotiating forum known as the Paris Club.

The devaluation of the rouble has sharply raised the cost of servicing this debt, and Russia has long been urging that the debt should be forgiven.

German officials, whose country is owed the most by Russia, suggested that with the Russian economy improving, only limited concessions might be necessary.

"We are of the opinion that forgiveness is not necessary or desirable," a senior government source said. "But what we have in mind is rescheduling under the auspices of the Paris Club."

Russia inherited $42bn in Soviet government debt.