Russia and the International Monetary Fund this week agreed on a framework that will permit the organization to resume lending to the beleaguered country. Only the outlines of the deal have emerged; final details are to be worked out next week. But the particulars of the package are less important than the fact that the two sides reached an agreement. A deal is a vote of confidence in Russia’s ability to manage the economy and opens the door to negotiations with other debtors.
In truth, the agreement is a fudge. The IMF funds will be made available to pay off previous loans from the organization. The amount that has reportedly been agreed to is slightly more than the sum Russia owes the IMF. It is unlikely that the money will ever actually leave Washington. That is only prudent, given the speed with which earlier loans fled the country to line the pockets of well-connected businesspeople. But it is also a measure of the skepticism surrounding the Moscow government’s promises to get its fiscal house in order.
The few details that have been publicized do not give reason for hope. Reportedly, the fund agreed that Russia’s budget surplus would only reach 2 percent of GDP, rather than the 3.5 percent that it had demanded. Even the lower figure seems beyond reach given the government’s anemic ability to collect tax revenues. But a low number could make future noncompliance easier to ignore.
Next week’s negotiations will be tough. But the nod given by IMF Managing Director Michel Camdessus to a deal means that agreement is virtually certain to be reached. That means other bilateral and multilateral negotiations can proceed as well. One especially tricky subject is the $100 billion in Soviet-era debt the Russian government inherited. It would like to see 75 percent of that written off, but that sort of generosity is extremely unlikely. Given the prevailing belief that Russia is “too big to fail,” however, nothing is beyond the pale. That is why this week’s “vote of confidence” in Russia is really almost anything but.
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