News Brief No. 98/24

News Brief: Camdessus says IMF Board to Consider Strengthened Reform Program Supported by Substantial Increase in Financing for Russia

July 13, 1998

Michel Camdessus, Managing Director of the International Monetary Fund (IMF), said today that: "The IMF team currently in Moscow has reached agreement with the Government of Russia on a major strengthening of Russia’s economic program which I intend to recommend to the IMF’s Executive Board as the basis for an immediate and significant increase in the IMF’s financial support for Russia. This support will help Russia face its difficult problems which have been exacerbated by the sharp decline in commodity prices, in particular oil.

"Under the new economic program, Russia’s fiscal position is being strengthened markedly. The federal budget deficit is expected to fall to 5.6 percent of GDP in 1998, from 6.8 percent in 1997. As a result of the measures agreed with the Russian government, the deficit is targeted to fall further to 2.8 percent of GDP in 1999. Many structural reforms of the fiscal system, including major measures to improve the tax system, as well as additional reforms agreed in the context of the program supported by the World Bank, will be implemented.

"The additional support that I will recommend to the Executive Board of the IMF will amount to SDR 8.5 billion (about US$11.2 billion) in 1998. Half this amount (about US$5.6 billion) will be provided as soon as the agreed actions of the Russian government have been taken, by legislation where necessary, and upon IMF Executive Board approval. The rest would be made available during the remainder of the year. Together with the resources provided under the current EFF credit for Russia, total financing from the IMF during the remainder of 1998 would amount to SDR 9.5 billion (about US$12.5 billion). I expect the IMF Executive Board will consider the program of the Russian government on July 20.

"Given the systemic nature of the problem, the size of the additional financing, and the IMF’s liquidity position, I have initiated consultations with the participants in the General Arrangements to Borrow (GAB) to activate the GAB to secure most of this additional financing for Russia.

"The Russian government has also informed me that it intends to request a new EFF for the years 1999-2001. I welcome its intention and expect that, with continued reform, I would recommend further IMF financial support for Russia’s medium-term economic program on a scale to similar to that of the present EFF, approximately SDR 2 billion (about US$2.6 billion) per year.

"I understand that the World Bank’s management has reached agreement in principle with the Russian government on a far-reaching structural reform program, and intends to recommend to its Board of Executive Directors the approval of structural adjustment lending which would make available an additional US$800 million in 1998. Together with disbursement of already committed adjustment loans, total adjustment loan disbursements by the World Bank to Russia during the remainder of 1998 could then amount to US$1.25 billion. The World Bank plans a total disbursement of some US$3 billion in adjustment lending for Russia in 1999, subject to strong progress of the reform program and to approval by the Bank’s Board of Executive Directors. Total World Bank disbursements to Russia during the remainder of 1998 and 1999, including adjustment and investment lending, could reach up to US$6 billion. During the same period, as previously announced, the Japanese authorities plan to make available to Russia US$1.5 billion in balance of payments support, co-financed with World Bank adjustment loans.

"The Russian government is announcing today its intention to offer to holders of Treasury Bills (GKOs) the opportunity to convert the bills into medium or long-term bonds denominated in US dollars. I welcome this initiative, which will ease pressures in the GKO market that have arisen in rolling over maturing bills, and will reduce the burden of interest payments on the budget. The strengthening of Russia’s economic policies--both fiscal and structural--the large additional financial resources, and the debt conversion scheme should fundamentally improve the financial situation of the Russian government," Camdessus said.

"The strengthening of Russia’s economic policies--both fiscal and structural, the large additional financial resources, and the debt conversion scheme, should fundamentally improve the financial situation of the Russian government," Camdessus said.