Press Briefing on Russia - - Stanley Fischer

IMF News, July 13, 1998

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Press Briefing on Russia - - Stanley Fischer

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Bibliographic details

• Published: July 13, 1998

Overview of agreement with Russia

• Agreement focuses on the 1999 budget and structural measures to promote growth.
• The 1999 budget is expected to produce a budget deficit of 2.8 percent of GDP, versus an expected 1998 deficit of 5.6 percent and a 1997 budget that was larger than 1998.
• The Russian Government will submit measures to the Duma on Wednesday and Thursday; the Federation Council meets Friday and Saturday. Measures must be approved by both houses and signed by the President.
• IMF Board meeting scheduled for next Monday to allow parliamentary consideration and Presidential action.
• IMF staff emphasized credibility and implementation: agreement includes procedures in the event measures are not accepted by the Duma and Federation Council.

IMF financing package and tranches

• IMF agreed to provide an extra $11.2 billion to Russia in 1998.
• $5.6 billion of that $11.2 billion would be recommended for disbursal upon Board approval next Monday, conditional on pre-conditions being met.
  • Of the $5.6 billion, half would be an augmentation of the EFF and half would come from the CCFF; $2.8 billion of the $5.6 billion comes out of the CCFF.
• Two additional tranches in 1998 would complete the total additional $11.2 billion for 1998.
• Two tranches of $670 million each are waiting to be disbursed when conditions are met on schedule in the remainder of 1998.
• If Russia stays on track, it will be eligible for another $12.5 billion of financing from the IMF in 1998 (i.e., $11.2 billion extra plus the two $670 million tranches).
• Russians requested replacement of the current EFF by a new 3-year EFF starting beginning of 1999, with envisaged disbursements on roughly the same scale as the present EFF, about $2.6 billion a year.
  • Under that envisaged path, by the end of 1999 the Fund would have disbursed about $15.1 billion to Russia.
• Timing of expected remainder of 1998 disbursements: remaining $5.6 billion expected in two tranches (Mr. Fischer indicated August and another tranche coinciding with other releases).

World Bank and bilateral support amounts

• World Bank: $1.25 billion for the remainder of 1998; plans another $3 billion in 1999; plus pipeline funds taking total to $4.25 billion, and "money still coming due" bringing it up to $6 billion due from the World Bank between now and the end of 1999.
• Japan: agreed to provide $1.5 billion in balance of payments support cofinancing the World Bank.
• Aggregation cited: $21.1 billion through end-1999 from IMF + World Bank; with Japan's $1.5 billion cofinancing, reaching the Russian figure of $22.6 billion.

GKO conversion (debt restructuring) details

• Russian Government to announce a plan (voluntary) to convert GKOs maturing through June 1999 into longer-term, dollar-denominated liabilities at 7 years and 20 years.
• Purpose: make rollover attractive, relieve immediate market pressure, reduce interest bill on replaced instruments, and likely reduce interest on existing GKOs.
• Russians agreed there will be no further borrowing at less than one-year maturity under the program.
• Details of the debt offer to be announced the following day; a road show planned later in the week.
• IMF did not require hedging of new dollar-denominated instruments (answer to question: "Did you require them to hedge their currency exposure?" — "No.").

IMF liquidity position and use of GAB

• IMF developing need to draw on GAB due to significant call on resources for Russia.
• Of the $11.2 billion extra for Russia, IMF intention is to request that $8.4 billion be provided from the GAB.
• Current stated net usable resources and liquidity (as of the briefing):
  • Net usable resources: SDR 23.5 billion (stated as "say, $31 billion").
  • Liquid liabilities: SDR 52.6 billion.
  • Liquidity ratio: 45.7 (as of today).
• With the announced Russian program and expected new commitments for the remainder of the year:
  • Without use of the GAB, liquidity ratio would fall to 19 percent.
  • With GAB use of the amount mentioned (SDR 8.4 billion / $8.4 billion equivalent), liquidity ratio at end-1998 expected to be about 29 percent.
  • Both figures described as "very low" and "an historic low" apart from a very brief earlier moment.
• Dollar breakdown provided by Mr. Williams:
  • Without the GAB: expected lendable resources would be $19.8 billion by end of year.
  • With the GAB: expected lendable resources would be $23 billion by end of year.
  • Current usable resources cited as $31 billion (equivalently SDR 23.5 billion).
• Discussion of lendable resources and comfortable liquidity threshold:
  • At a 30 percent liquidity ratio, IMF would need $17.5 billion; current was cited as 30 (conversion context in Q&A).
  • Lendable resources (difference between current resources and needed at 30 percent) indicated as $12.5 billion in that discussion.
• Historical GAB invocation:
  • Last U.S. invocation referenced as 1978; other reference to 1976 as the "real one."
• GAB available amounts referenced:
  • "There is another 14 we could draw on in the GAB" and Mr. Williams: "Ten-point-six billion SDRs, $14 million" (exact phrasing preserved from transcript).

Monitoring, conditionality, and implementation

• IMF will recommend disbursal next Monday if pre-conditions are met and Board approves.
• Monitoring to proceed via established mechanisms: mission presence in Moscow, cooperation with central bank, scheduled tranche releases tied to performance.
• Tranche release timing discussed: September and early December for monitoring cycles; tranches expected to coincide with specified release schedule (August, then when everything is put together).
• Mr. Fischer: "Whenever there is a tranche release, yes, every time there is a scheduled tranche release."

Risks, macro outlook, and banking sector concerns

• Devaluation considerations:
  • IMF view: devaluation does not solve underlying fiscal problem; main focus is budget correction to address recurrent fiscal problem.
  • Devaluation would have adverse consequences for banking system and inflation; precise numbers on exposures were not known.
  • Hedging activity in GKO market reported to have come down because hedges became expensive; IMF indicated uncertainty about precise extent.
• Banking sector vulnerabilities highlighted as a concern if devaluation occurs and because of potential hedge-related exposures of Russian banks.
• Fiscal federalism, revenue-sharing, inclusion of previously off-budget funds into budget, and tax code reforms are among structural measures in the package.
• Macroeconomic outlook:
  • IMF staff forecasts not available at the time of briefing; Mr. Fischer guessed "modest growth in 1999 under the program" if successful and if interest rates fall significantly.
  • Mr. Fischer deferred giving formal forecasts until staff documents become available in following days.

Other country programs and operational constraints

• Pakistan:
  • Tranche consideration for Pakistan was on Board schedule; sanctions following Pakistan's nuclear test complicate support as G-7 sanctions affect voting prospects.
  • IMF stated Pakistan difficulties are related to sanctions, not IMF financial constraints.
• Indonesia:
  • Board meeting scheduled for Wednesday on Indonesia for a $1 billion tranche under its program.
  • Indonesian LOI had been published.
  • IMF sees progress on funding gap resolution for Indonesia, sufficient to go to the Board though the issue is "not entirely closed."
• Broader operational constraints:
  • IMF entering a region of grave financing difficulty; without additional resources or shareholder action, capacity to respond to major crises would be constrained.
  • If quota increases were approved by shareholders, the total would be another $90 billion, with $67 billion usable (Mr. Williams gave figure of "Ninety-two billion, of which $67 billion will be usable" — both figures cited in the transcript).
  • Quota increase requires 85 percent of voting shares; U.S. approval is pivotal.
  • IMF stressed institutional differences versus World Bank: Fund operates on member resources and members' rights to reserve tranches; GAB is the borrowing backup.

Policy messages and recommendations (implicit in briefing)

• Fiscal consolidation and credible implementation are necessary to remedy Russia's recurrent budget problem.
• Structural measures (fiscal federalism, tax code reforms, bringing off-budget funds into the budget) are central to program credibility.
• International financing (IMF, World Bank, bilateral cofinancing) should be coordinated and contingent on credible program implementation.
• Monitoring and tranche-based conditionality remain primary tools to ensure compliance and program progress.

Source: Press Briefing on Russia — Stanley Fischer, July 13, 1998.

References

• PRESS CENTER
• www.imf.org/external/np/tr/1998/tr980713a.htm
• [[Briefing Continued by Mr. Williams]](https://www.imf.org/external/np/tr/1998/TR980713A.HTM)
• https://www.imf.org/en/home