Steven Mufson

This selection first appeared in the Washington Post on Saturday, December 4, 1999 ; Page A01.
Steven Mufson is a staff writer at the Post.

The International Monetary Fund held back a $640 million loan installment for Russia yesterday in a move that many economists and Russian officials interpreted as a reaction to political pressure from European nations upset about the war in Chechnya.

After IMF Managing Director Michel Camdessus met with senior Kremlin economic adviser Alexander Livshits yesterday, IMF spokesman Thomas Dawson cited Russia's failure to enact economic reforms as the reason for delaying the payment, the second installment of a 17-month, $4.5 billion lending program approved in July.

Camdessus "discussed the required structural measures that haven't been met," Dawson said. "It is likely that these technical issues may take a few weeks to be resolved."

But sources familiar with the IMF talks with Russia said that France and Germany were pressing the fund to hold back on its lending program because of the war in Chechnya, where a Russian military offensive has created hundreds of thousands of refugees and caused many civilian casualties. In contrast, the Clinton administration has insisted on keeping IMF loans to Russia separate from its criticism of the war.

"A cold wind blows into Russia, not from the Atlantic; it blows from Europe," Livshits said yesterday before meeting with Camdessus. He praised the U.S. stance on lending as "sensible."

The IMF, which makes loans to countries around the world to stabilize economies, generally does not allow politics to influence decisions about its assistance, but it requires governments to meet specific economic targets. "This seriously undermines the IMF as an economic watchdog," said Anders Aslund, an economist and former Russia adviser at the Carnegie Endowment for International Peace.

"The Europeans are up in arms over the war, and the IMF tranche [installment] is one of the few things they can do anything about," Aslund said. He added that Russia "had essentially complied" with IMF loan conditions and predicted that the IMF move would cause a "total rift in the relationship" between the fund and Russia.

IMF officials acknowledge that Russia met the macroeconomic guidelines that were set in July when the loan was granted and that are usually the agency's most important benchmarks. Russia has erased its trade deficit, brought its budget closer to balance, and stabilized inflation and its foreign exchange reserves.

However, the government of President Boris Yeltsin has been slow to address the issues the IMF labels "structural," which usually include such measures as bank, tax and enterprise reforms. And despite a more than doubling in oil prices and a big trade surplus, Moscow's foreign exchange reserves have not increased.

Russia launched a military offensive against the region of Chechnya two months ago after blaming it for a series of bombings of apartment buildings in Moscow. Yeltsin and his prime minister, Vladimir Putin, have rejected Western criticism of the campaign, insisting that it is an internal matter.

Livshits said in an interview yesterday that the only reason the IMF should have to link its lending to the war in Chechnya would be if Russia were spending too much on the war. He said that the IMF set guidelines for such spending and that Russia has not exceeded those limits. He said the war has cost about $110 million so far.

"The IMF has been exposed to great pressures. As a rule, it usually endures," he said. Regarding Russia's compliance with conditions for a new loan installment, he said, "You can always find certain shortcomings."

The impression that the IMF decision was influenced by politics was furthered by remarks made by Camdessus in Madrid last week. Asked about linkage of IMF lending to the war in Chechnya, Camdessus said, "We cannot go on with our financing if the rest of the world doesn't want us to." He said Russia's military campaign is "violent, and the reaction of public opinion is very negative."

European nations were believed to be upset also about delays in the mission of Knut Vollebaek, the foreign minister of Norway. Russia agreed to allow Vollebaek's visit during the recent Organization for Security and Cooperation in Europe summit in Istanbul.

Secretary of State Madeleine K. Albright spoke to Russian Foreign Minister Igor Ivanov this week to press him about Chechnya. State Department spokesman James P. Rubin said Ivanov assured her that Russia would allow the visit. "She also made very clear in that conversation our strong opposition to a military solution . . . and that there is the potential to harm the U.S.-Russian relationship if this path continues," Rubin said yesterday.

It remained unclear what Russia would do in the next few weeks to resolve the structural issues Camdessus cited yesterday. Livshits said in an interview before the meeting that Russia is unlikely to tackle tax reforms before its presidential elections next summer, because of concern about offending people who benefit from tax breaks. Analysts say the same is likely in other areas.

Many analysts said that the IMF loan, for now, is not a matter of survival for Russia. Having defaulted on a variety of private loans, Moscow is not receiving any significant private loans. The IMF loans made in recent months have gone mostly to repay the interest and principle owed by Russia to the IMF on earlier loans.

So far this year, Russia has repaid about $5 billion to the IMF while receiving only $640 million. Russia has reduced its outstanding loans from the IMF from a high of $22 billion to about $16 billion, the IMF said.

The current installment was part of a $4.5 billion lending program suspended in September. In the wake of the scandal concerning alleged laundering of Russian funds through the Bank of New York, the IMF added several conditions. After a meeting of the Group of Seven leading industrial nations, more conditions were added.

At the State Department briefing yesterday, spokesman Rubin sidestepped questions about the U.S. position on the installment. "At this point, the IMF issue is pretty straightforward, and that is that . . . Russia is still completing economic conditions required by its program."

Articles appear as they were originally printed in The Washington Post and may not include subsequent corrections.