## _wp04155

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---

### Scope and purpose
- Aim: explain the role of the IMF in Russia in the 1990s "as seen by a senior member of the IMF staff team working on Russia."
- Objective: place on the public record information about the IMF’s activities "at a very important time."
- Focus of the paper: the second assessment approach—assessing the IMF’s actual impact on policy in practice.

### Approaches to assessing the IMF’s role
- Three assessment approaches identified:
  - Assess the quality and relevance of the advice and technical assistance given by the IMF.
  - Identify where and how the IMF affected economic policy in practice (including counterfactuals and policy implementation fidelity).
  - Assess how beneficial the IMF’s influence was on economic policy and outcomes, building on conclusions from the second approach.
- This paper: focuses on the second approach; does not attempt the first; does not systematically attempt the third.

### Section II — Context of the IMF’s work

- A. Economic Policy Views of the Russian Authorities
  - Official public position in the 1990s: pursue liberal economic reforms to achieve rapid establishment of a market economy.
  - Intellectual reform leaders and tenure:
    - Yegor Gaidar: deputy prime minister with responsibility for economic reforms from November 1991; remained in government until December 1992 (last six months as acting prime minister); returned for four months as first deputy prime minister in September 1993.
    - Anatoly Chubais: deputy prime minister from November 1991 until early 1996 and again in 1997.
  - Organized opposition within government favored using fiscal and regulatory powers and CBR credits to support production; notable figures: Oleg Soskovets, Oleg Lobov, Vladimir Kadannikov, Prime Minister Victor Chernomyrdin (December 1992–March 1998).
  - President Yeltsin:
    - Speeches and appointments suggested closeness to reformers but he sometimes opposed them for political reasons.
    - Suffered from poor health, especially after 1995, limiting ability to sustain authority.
    - Made transfers of power to regional levels on an ad hoc basis.
  - Role of Parliament:
    - Supreme Soviet (dissolved September 1993) and Duma (inaugurated December 1993) more often favored protecting production than supporting liberal reforms.
  - Bureaucratic and state capacity constraints:
    - Reformers initially underestimated bureaucratic obstacles in 1992; Chubais emerged as a skilled operator.
    - Collapse of the Communist Party network created a vacuum filled by business, interest groups, and criminals; regional governors and legislators often defied federal authorities.
  - Business influence and oligarchs:
    - Enterprises sought government and CBR support to adapt to price- and profitability-driven signals.
    - Victor Gerashchenko, Chairman of the CBR from July 1992 to November 1994, initially sympathetic to deemphasizing inflation control in favor of supporting production, but moved away over time.
    - Mid-1990s: a small group of businessmen (the oligarchs) consolidated power dramatically in the loans-for-shares operation in late 1995 and via support for Yeltsin’s 1996 reelection campaign.
    - Oligarchs influenced legislation, sponsorship of Duma members and ministers, taxation arrangements, privatization and tax deals; Vladimir Potanin served as first deputy prime minister with responsibility for economic policy from August 1996 to March 1997.
    - The oligarchs’ example encouraged other businessmen to emulate them, further weakening the state.
  - Two principal reasons reforms did not progress more smoothly:
    - Lack of consensus in favor of liberal economic reforms within the Russian leadership.
    - Weakness of the Russian state.

- B. IMF Policy Advice
  - Overarching IMF view: move as quickly as possible with key changes—especially macroeconomic stabilization, liberalization, and privatization—while recognizing some reforms would take years (legal infrastructure, privatization and restructuring of large enterprises, market system for banking and finance).
  - Exceptions to rapid adjustment: gradual increases in prices of public utilities and housing rents; gradual reduction of export taxes on energy and other basic imports.
  - IMF positions broadly aligned with Russian reformers; IMF often endorsed reformers’ policies rather than pushing major changes.
  - Rationale for rapid reforms summarized:
    - Disintegration of central planning by end-1991 made gradual phasing impractical.
    - Baltic and other rapid reformers experienced earlier and more rapid rises in living standards than slower reformers; countries maintaining old system (Belarus, Uzbekistan) avoided sharp initial GDP falls but grew more slowly subsequently.
    - Opposition from vested interests and oligarchs would not have been more manageable under a slower reform pace.
    - IMF’s reform strategy remained broadly unchanged despite Russia’s difficulties.
  - Early-1990s IMF advice priorities:
    - Avoid hyperinflation and bring inflation down quickly to enable resumption of growth.
    - Emphasized tight monetary and fiscal policies to contain inflation, contrasting with views favoring credit expansion to stimulate output.
    - By end-1995, after inflation had been brought under control, IMF focused more sharply on fiscal policy in light of government difficulties that culminated in the financial crisis of August 1998.
  - Post-1999 IMF advice:
    - With macroeconomic stability reestablished and the economy growing, advice included managing monetary policy amid large increases in international reserves and medium-term fiscal policy in a world of fluctuating oil prices and revenues.
  - Technical and operational role:
    - IMF missions and resident staff discussed detailed operational issues with counterparts in the CBR, ministry of finance, and other departments (examples: how to set monetary policy to reduce inflation, design instruments for controlling the money supply, creation of a treasury, meaning and importance of quasi-fiscal deficits).
    - IMF played a major role in transferring operational knowledge within a market-oriented macroeconomic policy context aimed at low inflation and a favorable environment for growth.
  - Political and cultural constraints:
    - Russian sense of national strength and history made accepting IMF loans and conditionality politically and psychologically difficult for many officials (example: Yevgeny Primakov, prime minister September 1998–May 1999).
    - IMF staff sought sensitivity to country “ownership,” but tensions persisted.
  - IMF and structural/institutional reforms:
    - IMF recognized structural and institutional reforms across the whole economy were the major, most difficult parts of transition; Michel Camdessus (April 1992) put “speedy adoption of a legal institutional framework” first out of five broad reform areas, with macroeconomic stabilization third.
    - IMF’s mandate focused it on macroeconomic issues; other institutions (especially the World Bank) focused on structural and institutional reforms.
    - IMF worked closely with the World Bank to ensure government programs included structural reforms; IMF assisted in identifying broad priorities and insisted key reforms be included before financial support.
    - High point: preparation of the government’s medium-term economic program in 1995–96 and the IMF Executive Board approval of a loan under the Extended Fund Facility (EFF) in March 1996; IMF’s contribution emphasized banking, finance, and fiscal areas.
    - In practice, except for some critical fiscal measures, the IMF did not subsequently insist on full implementation of the original structural agenda; authorities made slow progress in most areas.
    - Counterargument within the IMF: setting a reform agenda could strengthen reformers’ hand and increase likelihood of implementation; later acceleration in reforms after 2000 may owe something to earlier preparations.
  - Complementary institutional roles:
    - World Bank: building institutions of a market economy, developing the private sector, mitigating social costs of transition.
    - IMF: complemented stabilization efforts and focused on macroeconomic policy design and implementation.

### Box 1 — Structural Reform Agenda, 1996–98 (selected items)
- Banking system:
  - Conduct examinations of the financial condition of the largest banks.
  - Introduce legislation on bank bankruptcy.
  - Begin bank rehabilitation.
  - Improve transparency of banks disclosed financial information, including introduction of International Accounting Standards (IAS).
  - Strengthen contract enforcement.
  - Facilitate entry of foreign banks.
- Payments system:
  - Develop a strategy for improving the payments system.
  - Introduce same-day settlement for large transfers among the financial centers.
  - Improve the efficiency of clearing centers.
  - Introduce electronic settlements.
- Bank supervision:
  - Introduce additional, tightened, and more transparent reporting requirements based on IAS.
  - Widen bank audits.
  - Introduce penalties for noncompliance with prudential requirements.
- Capital markets:
  - Introduce securities legislation.
  - Adopt minimum standards for market participants.
  - Amend the law on bankruptcy and the civil code to strengthen creditor rights.
- Foreign trade:
  - Reduce the average and maximum import tariff.
  - Remove export duties.
  - Eliminate duty exemptions.
  - Remove mandatory registration of export contracts.
  - Remove import quotas on alcohol.
  - Harmonize excise taxation of domestic and imported goods.
- Budget system and process:
  - Consolidate extrabudgetary expenditures and revenues.
  - Improve expenditure management, including through monitoring successive stages of the spending process with strengthened budgetary accounting.
  - Strengthen internal auditing.
- Energy taxation and revenue measures:
  - Improve efficiency and effectiveness of the tax system applicable to oil production.
  - Revise taxation system of gas and power sectors.
  - Increase revenues from remaining state ownership in the energy sector.
- Intergovernmental fiscal relations:
  - Redesign the tax sharing system.
  - Limit State Tax Service responsibilities to collecting taxes.
  - Conduct an overall evaluation of intergovernmental relations.
- Social safety net (selected):
  - Delink pension and unemployment benefits from the minimum wage.
  - Amend legislation to introduce a two-tier pension system.
  - Strengthen payroll tax revenue collections through broadening the tax base.
  - Introduce a basic poverty benefit.
- IMF influence on structural and institutional reforms:
  - IMF did not generally have a significant influence on structural and institutional reforms other than those related to design and implementation of monetary and fiscal policies (examples: introduction of money market instruments, design of the treasury, and tax administration).
  - Reasons cited:
    - Staff’s limited expertise and the IMF’s macroeconomic mandate.
    - Need to focus efforts on macroeconomic, especially fiscal, issues during the difficult years of the 1990s, leaving little leverage to persuade government to implement the structural reform program.
    - If macroeconomic policies were being successfully implemented, IMF was usually unwilling to delay disbursements because of structural-side problems, except when those measures directly affected monetary or fiscal policy (e.g., revenue collection).
- Exceptions where disbursements were delayed:
  - January 1997: a disbursement delayed because of delays in repealing a resolution introducing quotas on alcohol and vodka imports and in differentiating natural gas prices to reflect transportation costs.
  - November 1999: a disbursement delayed and never made, ostensibly because authorities did not fully implement various structural measures relating to the CBR’s foreign subsidiaries and its internal accounting and control arrangements; the text notes the real reason was more complicated.
- Consequence: Russian authorities understood the IMF was unlikely to delay disbursements for reasons not directly connected to macroeconomic policy problems, so they gave lower priority to implementing structural and institutional measures than to macroeconomic measures.
- Public perception versus IMF’s actual role:
  - Contrast between IMF’s limited influence on structural reforms and public perception that the IMF was responsible for policy advice and outcomes in these areas.
  - Reasons for perception: IMF-supported programs had large structural components; IMF leaders’ speeches stressed structural reforms; media focus on IMF-Russia negotiations amplified perceived IMF influence.
  - World Bank, EBRD, and others were more actively involved in structural/institutional advice but received less public attention.

### Box 2 — U.S. Attitudes to the IMF after the 1993 Duma Elections (key dynamics)
- Political context:
  - December 1993 Duma elections: nationalists and communists emerged with a majority; liberal, pro-western groups were in the minority.
- U.S. public statements and interventions:
  - Vice President Gore said the IMF had been “slow to recognize some of the hardships that are caused by some of the conditions that have been overly insisted upon in the past.”
  - U.S. Deputy Secretary of State Talbot reported sympathy for the view that the IMF was too tough on Russia and that the administration wanted to promote “less shock and more therapy.”
- Domestic U.S. follow-up:
  - February 1994: U.S. Senate Committee on Banking held hearings on the impact of IMF and World Bank policies on the Russian economy; witnesses included Jeffrey Sachs, Marshall Goldman, Peter Reddaway, and Jude Wanniski.
- Immediate impacts:
  - IMF leadership and U.S. Treasury were aware political mood in Washington could affect support for IMF conditionality.
  - Michel Camdessus became more willing during his March 1994 visit to settle for an economic program less strict than he preferred to preempt G-7 pressure.
  - January 1994: First Deputy Prime Minister Gaidar and Deputy Prime Minister and Finance Minister Fedorov resigned; government pursued a less strict macroeconomic policy option.
  - Gaidar (1997) believed U.S. criticism weakened the IMF’s ability to support radical disinflation and those arguing for it.
- Broader implications:
  - G-7 reluctance to provide large-scale unconditional financial support led them to turn to IFIs that could apply conditionality, effectively assigning two sometimes-contradictory tasks to IFIs: lend on normal standards and lend to show political support.
  - Institutional split in G-7: finance ministries favored upholding IFI standards; foreign ministries favored visible support for political reasons.
  - Among the G-7, the United States effectively determined the collective position; other countries rarely opposed U.S. stance except on matters like Russia’s debt where Germany, as the largest creditor, could modify positions.
  - Russians often expected the West to make available large sums with few policy conditions and resented negotiating delays with the IMF.
- Key implications from the episode:
  - U.S. political rhetoric after the December 1993 Duma elections publicly questioned IMF conditionality and pressured for a softer approach.
  - Such rhetoric contributed to IMF management’s willingness to accept less strict programs and hardened Russian government positions, weakening domestic reformers (e.g., Gaidar and Fedorov resignations in January 1994).
  - Illustrates how external political statements by major shareholders (notably the United States) can complicate IMF conditionality and effectiveness in a politically fragile borrower country.

### References (selected factual items preserved)
- Historical financial assistance: in 1992 and 1993, all bilateral creditors provided a total of US$36 billion of financial assistance, with the G-7 accounting for the bulk of it.
- Numerous academic and policy references listed (authors and years preserved in source).

*Source: _wp04155*

### References..............................................................................................................

### _wp04155 - References

### Scope and purpose
- The paper aims to explain the role of the IMF in Russia in the 1990s, "as seen by a senior member of the IMF staff team working on Russia."
- It seeks to place on the public record information about the IMF’s activities "at a very important time."

### Approaches to assessing the IMF’s role
- Three distinct assessment approaches are identified:
  - First: assess the quality and relevance of the advice and technical assistance given by the IMF.
  - Second: identify where and how the IMF affected economic policy in practice (including whether Russia would have pursued different policies without IMF activity, and whether implemented policies matched IMF recommendations).
  - Third: assess how beneficial the IMF’s influence was on economic policy and outcomes in Russia, building on conclusions from the second approach.

### Focus and exclusions
- The paper focuses on the second approach: assessing the IMF’s actual impact on policy in practice ("This paper focuses on the second of these.").
- The paper does not attempt the first approach (analysis of quality and relevance of IMF policy advice): "It does not attempt the first, namely an analysis of the quality and relevance of IMF policy advice."
- The paper also does not attempt a systematic assessment of the third approach ("An assessment of the quality of IMF efforts, the third approach listed above, is also not attempted here in a systematic way.").

### Intended contribution
- The paper intends to contribute to a better understanding of one aspect of economic policymaking in Russia in the 1990s and to document IMF activities during that period.

* _wp04155 - References *

### Section II sets the scene by summarizing various elements of the context of the IMF’s work

### _wp04155 - Section II sets the scene by summarizing various elements of the context of the IMF’s work

### A. Economic Policy Views of the Russian Authorities
- Official, public position throughout the 1990s: pursue liberal economic reforms to achieve rapid establishment of a market economy.
- Intellectual leadership of reformers:
  - Yegor Gaidar: deputy prime minister with responsibility for economic reforms from November 1991; remained in government until December 1992 (last six months as acting prime minister); returned for four months as first deputy prime minister in September 1993.
  - Anatoly Chubais: deputy prime minister from November 1991 until early 1996 and again in 1997.
- Organized opposition within government favored using fiscal and regulatory powers and CBR credits to support production rather than market-driven enterprise adjustment; key figures included Oleg Soskovets, Oleg Lobov, Vladimir Kadannikov, and Prime Minister Victor Chernomyrdin (December 1992–March 1998).
- President Yeltsin’s stance:
  - Speeches and appointments suggested closeness to reformers, though he sometimes opposed them for political reasons.
  - Suffered from poor health, especially after 1995, limiting ability to sustain authority.
  - Made transfers of power to regional levels on an ad hoc basis.
- Role of Parliament:
  - The Supreme Soviet (dissolved in September 1993) and the Duma (inaugurated December 1993) more often favored protecting production than supporting liberal reforms.
- Bureaucratic and state capacity constraints:
  - Reformers initially underestimated bureaucratic obstacles in 1992; Chubais emerged as a skilled operator over time.
  - Collapse of the Communist Party network created a vacuum filled by business, interest groups, and criminals; regional governors and legislators often defied federal authorities.
- Business influence:
  - Enterprises sought government and CBR support to adapt to price- and profitability-driven signals.
  - Victor Gerashchenko, Chairman of the CBR from July 1992 to November 1994, was initially sympathetic to deemphasizing inflation control in favor of supporting production, but moved away from that position over time.
  - From the mid-1990s, a small group of businessmen (the oligarchs) consolidated power dramatically in the loans-for-shares operation in late 1995 and via support for Yeltsin’s 1996 reelection campaign.
  - Oligarchs influenced legislation, sponsorship of Duma members and ministers, taxation arrangements, privatization and tax deals; Vladimir Potanin served as first deputy prime minister with responsibility for economic policy from August 1996 to March 1997.
  - The oligarchs’ example encouraged other businessmen to emulate them, further weakening the state.
- Two principal reasons reforms did not progress more smoothly:
  - Lack of consensus in favor of liberal economic reforms within the Russian leadership.
  - Weakness of the Russian state.

### B. IMF Policy Advice
- IMF overarching view: move as quickly as possible with key changes—especially macroeconomic stabilization, liberalization, and privatization—while recognizing some reforms would take years (legal infrastructure, privatization and restructuring of large enterprises, market system for banking and finance).
- Exceptions to rapid adjustment: gradual increases in prices of public utilities and housing rents; gradual reduction of export taxes on energy and other basic imports.
- IMF positions aligned broadly with Russian reformers and many foreign observers; IMF often endorsed reformers’ policies rather than pushing major changes.
- Rationale for rapid reforms (summarized in the text):
  - Disintegration of central planning by end-1991 made gradual phasing impractical.
  - Baltic and other rapid reformers experienced earlier and more rapid rises in living standards than slower reformers; countries maintaining old system (Belarus, Uzbekistan) avoided sharp initial GDP falls but grew more slowly subsequently.
  - Opposition from vested interests and oligarchs would not have been more manageable under a slower reform pace.
  - IMF’s reform strategy remained broadly unchanged despite Russia’s difficulties.
- Early-1990s IMF advice priorities:
  - Avoid hyperinflation and bring inflation down quickly to enable resumption of growth.
  - Emphasized tight monetary and fiscal policies to contain inflation, contrasting with views favoring credit expansion to stimulate output.
  - By end-1995, after inflation had been brought under control, IMF focused more sharply on fiscal policy in light of government difficulties that culminated in the financial crisis of August 1998.
- Post-1999 policy advice:
  - With macroeconomic stability reestablished and the economy growing, IMF advice included managing monetary policy amid large increases in international reserves and medium-term fiscal policy in a world of fluctuating oil prices and revenues.
- Technical and operational role of the IMF:
  - IMF missions and resident staff discussed detailed operational issues with counterparts in the CBR, ministry of finance, and other departments (e.g., how to set monetary policy to reduce inflation, design instruments for controlling the money supply, creation of a treasury, meaning and importance of quasi-fiscal deficits).
  - IMF played a major role in transferring operational knowledge within a market-oriented macroeconomic policy context aimed at low inflation and a favorable environment for growth.
- Political and cultural constraints on IMF‑Russia interaction:
  - Russian sense of national strength and history made accepting IMF loans and conditionality politically and psychologically difficult for many officials (example: Yevgeny Primakov, prime minister September 1998–May 1999).
  - IMF staff sought sensitivity to country “ownership,” but tensions persisted.
- IMF and structural/institutional reforms:
  - IMF recognized structural and institutional reforms across the whole economy were the major, most difficult parts of transition; Michel Camdessus (April 1992) put “speedy adoption of a legal institutional framework” first out of five broad reform areas, with macroeconomic stabilization third.
  - IMF’s mandate focused it on macroeconomic issues; other institutions (especially the World Bank) focused on structural and institutional reforms.
  - IMF worked closely with the World Bank to ensure government programs included structural reforms; IMF assisted in identifying broad priorities and insisted key reforms be included before financial support.
  - High point: preparation of the government’s medium-term economic program in 1995–96 and the IMF Executive Board approval of a loan under the Extended Fund Facility (EFF) in March 1996; IMF’s contribution emphasized banking, finance, and fiscal areas.
  - In practice, except for some critical fiscal measures, the IMF did not subsequently insist on full implementation of the original structural agenda; authorities made slow progress in most areas.
  - Counterargument within the IMF: setting a reform agenda could strengthen reformers’ hand and increase likelihood of implementation; later acceleration in reforms after 2000 may owe something to earlier preparations.
- Complementary roles among institutions:
  - World Bank focused on building institutions of a market economy, developing the private sector, and mitigating social costs of transition; IMF complemented stabilization efforts and focused on macroeconomic policy design and implementation.

*Source: _wp04155 - Section II sets the scene by summarizing various elements of the context of the IMF’s work*

### Box 1. Structural Reform Agenda, 1996–98

### Box 1. Structural Reform Agenda, 1996–98

### Banking system
- Conduct examinations of the financial condition of the largest banks.
- Introduce legislation on bank bankruptcy.
- Begin bank rehabilitation.
- Improve transparency of banks disclosed financial information, including introduction of International Accounting Standards (IAS).
- Strengthen contract enforcement.
- Facilitate entry of foreign banks.

### Payments system
- Develop a strategy for improving the payments system.
- Introduce same-day settlement for large transfers among the financial centers.
- Improve the efficiency of clearing centers.
- Introduce electronic settlements.

### Bank supervision
- Introduce additional, tightened, and more transparent reporting requirements based on IAS.
- Widen bank audits.
- Introduce penalties for noncompliance with prudential requirements.

### Capital markets
- Introduce securities legislation.
- Adopt minimum standards for market participants.
- Amend the law on bankruptcy and the civil code to strengthen creditor rights.

### Foreign trade
- Reduce the average and maximum import tariff.
- Remove export duties.
- Eliminate duty exemptions.
- Remove mandatory registration of export contracts.
- Remove import quotas on alcohol.
- Harmonize excise taxation of domestic and imported goods.

### Budget system and process
- Consolidate extrabudgetary expenditures and revenues.
- Improve expenditure management, including through monitoring successive stages of the spending process with strengthened budgetary accounting.
- Strengthen internal auditing.

### Energy taxation and revenue measures
- Improve efficiency and effectiveness of the tax system applicable to oil production.
- Revise taxation system of gas and power sectors.
- Increase revenues from remaining state ownership in the energy sector.

### Intergovernmental fiscal relations
- Redesign the tax sharing system.
- Limit State Tax Service responsibilities to collecting taxes.
- Conduct an overall evaluation of intergovernmental relations.

### Agriculture
- Introduce a land register and facilitate land registration.
- Increase transferability of land.
- Untie the provision of inputs from state procurement.
- Introduce procedures for bankruptcy of agricultural enterprises.
- Introduce a land tax to finance social services at the local government level.
- Develop an agricultural tax strategy for inclusion in the federal budget.
- Target transfers to the regions or specific activities to link them to reforms.

### Urban land and real estate
- Introduce a land cadastre.
- Facilitate purchase of leased land.
- Improve transparency of land use rights.
- Strengthen loan collateral rights.
- Introduce mortgage legislation.

### Privatization and corporate governance
- Set targets for privatization revenues.
- Improve information on enterprises to be privatized.
- Use privatization receipts to clear tax arrears.
- Apply uniform and transparent rules to cash privatizations.
- Broaden monitoring and disclosure of financial information of enterprises.

### Natural monopolies
- Eliminate tax exemptions for natural monopolies.
- Allow natural monopolies to discontinue services to nonpaying customers.
- Improve governance and efficiency of each of the four natural monopolies (gas, electric power, telecommunications, and rail).
- Prepare a restructuring/privatization plan for each natural monopoly.
- Strengthen regulatory institutions to oversee tariff regulation.
- Introduce and foster competition among competitive segments of the system.

### Social safety net
- Delink pension and unemployment benefits from the minimum wage.
- Amend legislation to introduce a two-tier pension system.
- Strengthen payroll tax revenue collections through broadening the tax base.
- Strengthen eligibility criteria for the pension system.
- Conduct an assessment of the effectiveness of the social safety net in three poor regions.
- Trim benefits of the employment fund, increase its centralized share and transfer its revenue collection activities to the State Tax Service.
- Strengthen auditing of social funds.
- Initiate a new pension law.
- Introduce a basic poverty benefit.
- Adopt a transparent cash management system for the pension fund.
- Introduce a program of support for long-term unemployed based on the budgetary constraints of the employment fund.

### Health care
- Audit the medical insurance fund.
- Define a package of minimum benefits in relation to resource availability at the regional and federal levels.
- Offer a choice of health insurance companies and health service providers.
- Introduce oversight and regulation of insurance companies.

### Education
- Introduce a system of user fees and capitation formulas for the 1997 budget.
- Facilitate entry of new educational institutions.
- Develop an action plan for ensuring minimum standards for school achievement and testing.
- Make the allocation of research funds competitive.

### IMF influence on structural and institutional reforms
- The IMF did not generally have a significant influence on structural and institutional reforms other than those related to the design and implementation of monetary and fiscal policies (examples: the introduction of money market instruments, the design of the treasury, and tax administration).
- Reasons cited:
  - Staff’s limited expertise and the IMF’s macroeconomic mandate.
  - The IMF’s need to focus efforts on macroeconomic, especially fiscal, issues during the difficult years of the 1990s, leaving little leverage to persuade the government to implement its structural reform program.
  - If macroeconomic policies were being successfully implemented, the IMF was usually unwilling to delay disbursements because of structural-side problems, except when those measures directly affected monetary or fiscal policy (e.g., revenue collection).

### Exceptions and perceptions regarding disbursements
- Two prominent exceptions where disbursements were delayed:
  - In January 1997 a disbursement was delayed because of delays in repealing a resolution introducing quotas on alcohol and vodka imports and in differentiating natural gas prices to reflect transportation costs.
  - In November 1999 a disbursement was delayed and was never made, ostensibly because the authorities did not fully implement various structural measures relating to the CBR’s foreign subsidiaries and its internal accounting and control arrangements; the text notes that the real reason was more complicated.
- Consequences:
  - Russian authorities understood the IMF was unlikely to delay disbursements for reasons not directly connected to macroeconomic policy problems.
  - As a result, they gave lower priority to implementing structural and institutional measures than to macroeconomic measures.

### Public perception versus IMF’s actual role
- There was a contrast between the IMF’s limited influence on structural and institutional reforms and public perception in Russia and elsewhere that the IMF was responsible for policy advice and outcomes in these areas.
- Reasons for the perception:
  - IMF-supported programs, notably the 1996 program, had a large structural component.
  - Speeches by IMF leaders stressed the importance of structural reforms.
  - Media focus on IMF-Russia negotiations amplified the image of IMF influence across broad policy areas.
- The text notes that the World Bank, the EBRD, and others were more actively involved in advising on structural and institutional reforms, but received less public attention.
- It is observed as surprising that some people who knew the IMF’s limited role continued to hold the IMF accountable for problematic outcomes.

### Influence of the G-7
- The G-7’s reluctance to provide large-scale unconditional financial support to Russia led them to turn to international financial institutions (IFIs) that could apply conditionality.
- By not providing large scale financial support themselves, the G-7 effectively assigned two tasks to the IFIs that were sometimes contradictory:
  - Task 1: Lend on the basis of economic policies or projects that met the normal standards of the institutions.
  - Task 2: Lend to show support for the government (or President Yeltsin), even when economic policies or projects were not up to the IFIs’ normal standards.
- Institutional split in G-7 countries:
  - Finance ministries were most concerned with upholding the normal standards of IFIs.
  - Foreign ministries focused on broader political and bilateral issues, sometimes favoring visible support.
  - The example of the United States: the Treasury supported strict IMF conditionality, the State Department focused on political/bilateral issues, and the White House generally supported the Treasury but sometimes allowed political considerations to influence lending decisions.
- Historical note:
  - In 1992 and 1993, all bilateral creditors provided a total of US$36 billion of financial assistance, with the G-7 accounting for the bulk of it (Citrin and Lahiri, 1995, Table 7.5).  

*Source: _wp04155 - Box 1. Structural Reform Agenda, 1996–98*

### Box 2. U.S. Attitudes to the IMF after the 1993 Duma Elections

### Box 2. U.S. Attitudes to the IMF after the 1993 Duma Elections

### U.S. political statements and public interventions
- December 1993 Duma elections: nationalists and communists emerged with a majority; liberal, pro-western groups were in the minority.
- Vice President Gore, on a visit to Moscow a few days after the elections, said the IMF had been “slow to recognize some of the hardships that are caused by some of the conditions that have been overly insisted upon in the past.”
- U.S. Deputy Secretary of State Talbot (2003) reported that Gore had sympathy for the view that the IMF was too tough on Russia dating back to a September 1993 discussion in Washington between Chernomyrdin and Treasury undersecretary Summers.
- Talbot said in a December press briefing that the administration wanted to promote “less shock and more therapy.”
- Talbot (2003) later noted he infuriated “both Russian liberals and my colleagues at Treasury” and regretted the language he used, while also arguing that the hardships accompanying reforms were backfiring against the reformers. (Footnote in source.)

### Domestic U.S. follow-up actions
- February 1994: U.S. Senate Committee on Banking held hearings on the impact of IMF and World Bank policies on the Russian economy.
- Witnesses included Jeffrey Sachs (argued IMF should permit a bigger fiscal deficit financed by issuing bonds and borrowing abroad), Marshall Goldman, Peter Reddaway, and Jude Wanniski.

### Immediate impacts on IMF–Russia relations and Russian politics
- IMF leadership and U.S. Treasury were aware that political mood in Washington and other G-7 capitals could swing and affect support for IMF conditionality.
- Michel Camdessus became more willing, during his March 1994 visit to Moscow, to settle for an economic program that was less strict than he would have liked to preempt undue G-7 pressure.
- U.S. public statements hardened the Russian position: in January 1994 both First Deputy Prime Minister Gaidar and Deputy Prime Minister and Finance Minister Fedorov resigned from the government; the government then chose to pursue the less strict macroeconomic policy option.
- Gaidar (1997) believed that U.S. criticism of the IMF for excessive tightness weakened the IMF’s ability to support the radical disinflation option and those arguing for it, including himself.

### Broader G-7 and Russian perceptions
- Russians expected the West to make available large sums of money with few policy conditions as a political cost to prevent a return to communism or confrontation with the West; Russians resented negotiating delays with the IMF.
- The IMF feared that G-7 political concerns to make IMF money available even when normal economic policy conditions were not met might push the IMF to lend with insufficiently strong conditionality.
- Although overt G-7 pressure to force weak conditionality did not materialize, the atmosphere at times (e.g., end-1993 and 1996–98) led the IMF to err on the side of supporting weak policies rather than interrupting disbursements altogether.
- Russians sometimes viewed IMF negotiations as a charade, believing the G-7 would ultimately insist that the IMF proceed with loans.
- Among the G-7, the United States effectively determined the collective position; other countries rarely initiated approaches contrary to the U.S. stance except on Russia’s debt to G-7 countries where Germany, as the largest creditor, could modify U.S. positions.
- Russian authorities frequently sought U.S. support to put pressure on the IMF.

### Key implications from the box (findings and dynamics)
- U.S. political rhetoric after the December 1993 Duma elections publicly questioned IMF conditionality and pressured for a softer approach.
- Such U.S. rhetoric:
  - Contributed to a willingness by IMF management (Camdessus) to accept less strict programs to avoid G-7 political backlash.
  - Hardened the Russian government's stance and weakened domestic reformers’ position, leading to resignations (Gaidar and Fedorov in January 1994).
- The episode exemplifies how external political statements by major shareholders (notably the United States) can complicate IMF conditionality and effectiveness in a politically fragile borrower country.

*Italic: Source — Box 2. U.S. Attitudes to the IMF after the 1993 Duma Elections (content unit: _wp04155 - Box 2. U.S. Attitudes to the IMF after the 1993 Duma Elections)*

### References

### _wp04155 - References

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*Source: _wp04155 - References*

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