## Press Briefing on Russia - - Stanley Fischer _IMF News, July 13, 1998_ ## Source details **Canonical URL:** [Press Briefing on Russia - - Stanley Fischer](https://www.imf.org/en/news/articles/2015/09/28/04/54/tr980713) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/54/tr980713/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/54/tr980713/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/54/tr980713/bundle-manifest.json) ## 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](http://presscenter.imf.org/) - [www.imf.org/external/np/tr/1998/tr980713a.htm](https://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](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr980713_