John Odling-Smee

This letter to the editor was written in response to the preceding selection, "Mr. Yeltsin's Flexible Friend." It was originally published in The Economist, 27 July-2 August 1996. John Odling-Smee is the director of the fund's European II Department.

Sir--In your 13 July [1996] issue you suggest that, in the run-up to the Russian presidential election, the IMF "turned a blind eye" to financial overruns, and granted Russia special treatment.

Let me start with a basic point: Despite the election campaign, the macroeconomic performance of the Russian economy during the past six months has been truly remarkable. Monthly inflation has been brought down to about 1 percent from around 4 percent at the beginning of this year. Moreover, during the first half of this year the ruble exchange rate displayed extraordinary stability, staying well within its preannounced band. This performance is a result of Russia's following policies agreed with the IMF under the 1995 standby arrangement and the 1996 extended fund facility.

Unfortunately, your article insinuates otherwise and asserts that Russia "broke through the ceiling originally agreed for the budget deficit almost immediately, in March." This is simply untrue, as are a number of other assertions in the article. Despite your inviting the reader to infer otherwise, virtually every monetary target under the program was met during this period.

Your article demonstrates a lack of full appreciation of how programs supported by the IMF are designed and assessed. It is quite common, particularly under a tight and ambitious program of the kind designed with the Russian authorities, to modify certain parameters to reflect exogenous developments that may be difficult to quantify fully at the outset of the program year. For example, when much higher-than-foreseen treasury bill interest rates emerged, reflecting in part the political uncertainties in the run-up to the election, adjustments were made to the monthly fiscal deficit ceilings. However, the primary deficit (i.e., excluding interest expenditures) was kept roughly equivalent to that foreseen for the first half of 1996.

Rather than turn a "blind eye" to Russian economic policy, the IMF has continued to work very closely with Russian policymakers as they pursued the difficult course of stabilization. Indeed, the intensity of the IMF's involvement with Russia may be unprecedented. There is certainly no question of its having applied a lesser standard to that country.

The Economist Editors' note: We wrote: "The evidence is that Russia broke through the ceiling originally agreed for the budget deficit almost immediately, in March." It remains our view that a comparison of official data on Russia's public finances with the monthly targets set in the March [1996] agreement between Russia and the IMF points to that conclusion. Unfortunately, the IMF's data and calculations remain confidential.