Press Release: IMF Approves Augmentation of Russia Extended Arrangement and Credit under CCFF; Activates GAB

IMF News, July 20, 1998

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Press Release: IMF Approves Augmentation of Russia Extended Arrangement and Credit under CCFF; Activates GAB

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Bibliographic details

• Published: July 20, 1998

Overview

• The IMF approved financial support totaling SDR 8.5 billion (about US$11.2 billion) for the Russian Federation.
• Financing composition:
  • Augmentation of Russia’s extended arrangement: SDR 6.3 billion (about US$8.3 billion).
  • Compensatory and Contingency Financing Facility (CCFF): SDR 2.16 billion (about US$2.9 billion).
• Of the SDR 6.3 billion augmentation, the equivalent of SDR 4.0 billion (about US$5.3 billion) is to be made available under the SRF.
• The IMF will finance the SDR 6.3 billion augmentation by borrowing under the General Arrangements to Borrow (GAB) the equivalent of SDR 6.3 billion (about US$8.3 billion).

Immediate Availability and Disbursement Adjustments

• Immediately available amounts (equivalent of SDR 3.6 billion, about US$4.8 billion) comprise:
  • Drawings of SDR 768.4 million (about US$1.0 billion) under the Extended Fund Facility (EFF).
  • SDR 675.0 million (about US$0.9 billion) under the Supplemental Reserve Facility (SRF).
  • SDR 2.16 billion under the CCFF.
• Relative to the disbursement schedule announced on July 13, the first disbursement has been reduced by SDR 600 million (about US$800 million) due to delays in implementing certain prior actions.
  • The SDR 600 million is expected to be added to the disbursement previously scheduled for September, provided that the measures are satisfactorily implemented in the meantime.
• Calls on GAB participants will be made in proportion to amounts shown in Table 3 and in line with Russia’s drawings under the EFF.

Background and Macroeconomic Context

• Financial markets in Russia faced considerable volatility since October 1997 and intensified pressure since May 1998.
• Capital outflows led to steep increases in interest rates, undermining fiscal consolidation and the nascent economic recovery.
• Real GDP fell slightly in the first five months of 1998 compared with the same period in 1997.
• Inflation declined faster than projected.
• The balance of payments was in deficit during the first half of 1998 because of lower oil and gas prices and the reversal in market confidence.
• Government responses:
  • Strengthened efforts to correct the fiscal imbalance.
  • Accelerated structural reforms.
  • On June 25 presented a comprehensive package of stabilization measures to the Chambers of the Federal Assembly.
  • Monetary policy geared toward defending the exchange rate, allowing domestic interest rates to rise substantially.

Fiscal and Monetary Policies (Program Supported by IMF Augmentation)

• Program objectives:
  • Accelerate return to financial stability.
  • Intensify structural reforms.
• Program components:

1. A major fiscal adjustment in 1999, with supporting fiscal measures to be put in place at an early stage. 2. A strengthened structural agenda for the remainder of 1998, emphasizing actions to address the nonpayment problem and to promote private sector development. 3. Steps to ensure the viability of the government debt position.

• Fiscal targets and measures:
  • Reduce the federal budget deficit from 5.6 percent of GDP in 1998 to 2.8 percent of GDP in 1999.
  • Strengthen revenue performance from 10.7 percent of GDP in 1998 to 13 percent of GDP in 1999.
  • Key tax administration measure: full establishment of large taxpayers’ units, with increased monitoring and control of taxpayers’ payment of their current tax liabilities.
  • Debt-maturity strategy: Ministry of Finance offered holders of Treasury Bills (GKOs) the opportunity to exchange them for foreign currency Eurobonds with long maturities at market rates; results of the offer are being made public today.
• Monetary and exchange rate policy:
  • Should remain broadly unchanged during the remainder of 1998 to preserve the sharp fall in inflation and to take the inflation rate gradually lower.

Structural Reforms

• Structural measures are part of broader reforms supported by the World Bank.
• Focus areas:
  • Expand and strengthen existing policies.
  • New actions to address the nonpayment problem and promote private sector development.
  • Comprehensive approach to banking sector problems:
  • Resolve weak and insolvent banks.
  • Improve accounting, legal, and regulatory framework.
  • Strengthen supervision and compliance.
  • Formulate a longer-term strategy for developing competition in the banking system.

Drawing under the CCFF

• Drawing under the CCFF is in respect of an export shortfall related mainly to lower prices of crude oil during 1998.
• A calculated shortfall of about SDR 2.9 billion (about US$3.8 billion) in merchandise exports is attributable to the sharp decline in oil prices in the first half of 1998 and the expectation that the downward trend will continue through much of the rest of the year.

Schedule of Drawings (Table 1 summary)

• 7/20/98: CCFF 2,156.6; EFF 768.4; SRF 675.0; Total 3,600 — Condition: Board endorsement.
• 09/15/98: CCFF 1,440.3; EFF 1,806.3; SRF — Total 3,246.6 — Condition: Completion of eighth review under the extended arrangement and observance of the end-June 1998 performance criteria.
• 12/15/98: CCFF 1,104.4; EFF 1,511.2; SRF — Total 2,615.6 — Condition: Completion of the ninth review under the extended arrangement and observance of the end-September 1998 performance criteria.
• 02/15/99: CCFF 0.0; EFF 500.0; SRF — Condition: Completion of tenth quarterly review under the extended arrangement and observance of the end-December 1998 performance criteria.

Key Macroeconomic Indicators (Table 2 highlights, 1996–99 projections)

• Production and prices (Annual percentage changes unless otherwise indicated):
  • Real GDP: 1996 -2.8; 1997 0.8; 1998 -1.0; 1999 1.0.
  • Change in consumer prices, Annual average: 1996 47.8; 1997 14.7; 1998 7.2; 1999 5.8.
  • Change in consumer prices, 12-month: 1996 21.8; 1997 11.0; 1998 6.8; 1999 5.0.
• (In percent of GDP)
  • Gross national saving: 1996 22.5; 1997 21.3; 1998 18.8; 1999 18.6.
  • Federal Government (fiscal deficit): 1996 -9.3; 1997 -7.0; 1998 -5.6; 1999 -2.8.
  • Other: 1996 29.2; 1997 28.3; 1998 24.4; 1999 21.4.
  • Foreign saving1: 1996 -0.6; 1997 0.1; 1998 2.2; 1999 2.3.
  • Gross domestic investment: 1996 21.9; 1997 21.0; 1998 20.9.
  • Enlarged government deficit: 1996 9.5; 1997 7.9; 1998 6.2; 1999 3.3.
• Money and credit (Percentage change, end-period change):
  • Base money, narrow definition: 1996 26.2; 1997 28.0; 1998 22.4.
  • Ruble broad money: 1996 33.6; 1997 30.0; 1998 24.7.
• Interest rates, percent per annum:
  • Central Bank of Russia refinance rate: 48.0.
  • Treasury bill rate: 102.0; 40.4.
• External sector (In billions of U.S. dollars unless otherwise indicated):
  • Total exports, fob: 1996 90.5; 1997 88.7; 1998 81.3; 1999 85.1.
  • Total imports, fob: 1996 73.9; 1997 74.8; 1998 74.1; 1999 77.0.
  • External current account (deficit -): 1996 2.5; 1997 -0.4; 1998 -9.6; 1999 -10.4.
  • Public external debt service due: 1996 14.8; 1997 8.9; 1998 11.7; 1999 20.
  • Public external debt service after rescheduling: 1996 6.3; 1997 10.1; 1998 19.2.
  • Stock of external debt: 1997 123.5; 1998 147.0; 1999 149.0.
  • Debt as a percentage of GDP: 27.5; 33.9.
  • (In percent of exports of goods and nonfactor services) 14.5; 8.7; 12.3; 20.2; 10.6; 19.3.
  • (In months of imports of goods and nonfactor services) Gross reserves coverage: 2.0; 3.8; 3.7.
• Memorandum items:
  • GDP in billions of rubles: 1996 2,256; 1997 2,602; 1998 2,700; 1999 2,900.
  • Exchange rate rubles per US$1 (average): 1996 5,123; 1997 5,786; 1998 6.22; 1999 6.53.
  • GDP in billions of U.S. dollars: 1996 440; 1997 450; 1998 434; 1999 444.

Activation of GAB for SDR 6,305.57 (Table 3 summary)

• Total GAB activation amount proposed: SDR 6,305.57 (presented as 6,305,570,000 in Table 3).
• Participants and proposed total calls (values preserved as in Table 3):
  • United States: Total Credit Proposed 4,250,000,000; Total Calls 1,576,392,500.
  • Deutsche Bundesbank: Total Credit Proposed 2,380,000,000; Total Calls 882,779,800.
  • Japan: Total Credit Proposed 2,125,000,000; Total Calls 788,196,250.
  • France: Total Credit Proposed 1,700,000,000; Total Calls 630,557,000.
  • United Kingdom: Total Credit Proposed 17,000,000,000; Total Calls 6,305,570,000. [Note: Table 3 lists a final aggregated row showing 17,000,000,000 and 6,305,570,000; individual country rows above contain specified credits and calls.]
  • Italy: Total Credit Proposed 1,105,000,000; Total Calls 409,862,050.
  • Swiss National Bank: Total Credit Proposed 1,020,000,000; Total Calls 378,334,200.
  • Canada: Total Credit Proposed 898,500,000; Total Calls 331,042,425.
  • Netherlands: Total Credit Proposed 850,000,000; Total Calls 315,278,500.
  • Belgium: Total Credit Proposed 595,000,000; Total Calls 220,694,950.
  • Sveriges Riksbank: Total Credit Proposed 382,500,000; Total Calls 141,875,325.
• Footnote: A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.

Press Release No. 98/31, July 20, 1998.

References

• Russian Federation and the IMF
• Press Releases
• PRESS CENTER
• (see Press Release No. 97/59)
• (see Press Release no. 96/13)
• https://www.imf.org/en/home