Views and Commentaries for 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998
For more information, see Russian Federation and the IMF

Facts About IMF Lending to Russia

September 13, 1999

"That there has been capital flight on this scale (from Russia) does not surprise us, but there is no proven link between this money and the loans released by the IMF."
--Michel Camdessus; Managing Director, IMF; France-Soir; September 1, 1999.

The International Monetary Fund takes very seriously the recent allegations in the press that funds advanced to Russia may have been diverted from their intended purpose and included in the flows of capital that left the country illegally. The IMF has no evidence of such diversion. The U.S. authorities - including Treasury Secretary Lawrence Summers - have also stated that no evidence has been found that IMF funds were misappropriated, although their investigations of Bank of New York and other commercial banking operations continue.

Under the 17-month, $4.5 billion program approved on July 28, all IMF money disbursed to Russia will be held in an account at the IMF. This account will be used only for Russia's debt service to the Fund. Over the period of the program, Russia's payments to the IMF of interest and principal on previous arrangements will exceed new disbursements.

The IMF has insisted on the preparation and publication of investigations by the accounting firm PricewaterhouseCoopers (PwC), into allegations of mishandling of the July 1998 Fund disbursement, into relations between the Central Bank of Russia (CBR) and one of its offshore subsidiaries (FIMACO), and into statistical reporting to the IMF by the CBR. The investigations found no evidence to support the allegations concerning misappropriation of funds. However, the report on FIMACO uncovered past incidents of misreporting by the CBR to the Fund of the true position of Russia's international reserves and other monetary aggregates. The reports of the PwC investigations have been made available on the IMF website.

The IMF routinely reviews Russia's compliance with the terms of the program. The recent IMF mission to Russia was intended to determine whether the Russian authorities are meeting their commitments in the area of economic policy, including tax collection and the accumulation of foreign reserves. The Executive Board of the IMF, which represents its 182 member countries, would consider suspending disbursements if Russia is not meeting its commitments.

Russia's transition to an open, market-oriented system is proving to be more difficult and slower than anticipated. But both Russia and the international community will be better served if the IMF remains engaged and provides assistance under strict conditions. Russia has made progress in the past year by implementing cautious fiscal and monetary policies, and the economy has responded with renewed growth and low inflation.

The large capital outflows from Russia have fundamentally been due to the large uncertainty and risk that investors associate with keeping money in Russia. This uncertainty reflects a number of factors, among them macroeconomic instability, weak enforcement of property rights, an arbitrary and confiscatory tax system, and inadequate supervision and regulation of the banking system. Facilitating tax evasion may also be an important reason for capital flight. Fund-supported programs contain measures to address, over time, the economic problems that lead to capital flight.

Capital transferred abroad from Russia may represent such legal activities as exports, or illegal sources. But it is impossible to determine whether specific capital flows from Russia-legal or illegal-come from a particular inflow, such as IMF loans or export earnings. To put the scale of IMF lending to Russia into perspective, Russia's exports of goods and services averaged about $80 billion a year in recent years, which is over 25 times the average annual disbursement from the IMF since 1992.