News Brief

IMF Managing Director Horst Köhler made the following statement today in Moscow:

I have had discussions with President Putin, Prime Minister Kasianov, Governor Geraschenko, Ministers Kudrin and Gref, and the leaders of Duma financial committees, in addition to a large number of other officials and key policy makers.

This is my first visit to Russia as the Managing Director of the Fund, but, as you know, I had a close relationship with Russian officials in my previous capacity as head of the EBRD.

The discussions focused on a broad set of issues, ranging from the macroeconomic situation, including the impact of the recent decline in oil prices, to the priorities of structural reforms, and global economic developments. I also discussed relations between Russia and the IMF.

Macroeconomic issues

I congratulated the Russian authorities on what clearly has been a generally good macroeconomic performance in the past three years. There was agreement that this strong performance has partly been due to the depreciation of the ruble that occurred in the wake of the 1998 crisis, which has made Russian goods more competitive, and to the rise in oil prices since early 1999. It has also, however, been due to sound management of macroeconomic policies, both on the part of the CBR and the Ministry of Finance. The very sharp increase in the fiscal surplus is particularly noteworthy.

Looking ahead, the discussions on macroeconomic developments were particularly concerned with the implication of the recent decline in oil prices, after the tragic events of September 11. Our projection of the most likely outcome confirms the conclusion of the government that the decline that we have seen recently does not pose a serious threat to macroeconomic stability. Most important, I agree that it should not change the conclusion that Russia should continue to be able to service external debt in 2002 and 2003 without financial support from the Fund or the Paris Club.

However, given Russia's dependence on oil prices and the uncertainty and volatility of such prices, the situation would have to be kept under close review. The Fund mission that will come to Russia soon for the annual Article IV discussions will work with the authorities on various medium-term scenarios, as it usually does, and seek to agree on the appropriate strategy in each case.

A further major decline in oil prices from where we are today could mean that Russia might again need support from the Fund. I have reiterated that the Fund stands ready to provide such support if needed. But let me stress that recent developments do not change the conclusion that we do not at this moment see the need for such support.

Structural reforms

I have been very impressed by the recent progress in structural reforms. I have been especially impressed by the government's vision of future reforms, and the way in which they can be brought to every region of Russia. The achievements during the last weeks of the Duma's spring session were indeed quite extraordinary, and the approval of the Land Code at the beginning of the fall session shows that the strong momentum is continuing. The government's plans for the fall session show that it continues to push ahead with structural reforms. Attention will also have to be given to ensuring that these legislative changes truly lead to the intended changes throughout this vast country in how the economy works.

It is no secret that we in the Fund have felt that financial sector reforms have been somewhat slow so far. I have reiterated this view in my discussions. However, I have been encouraged by the recent elaboration of a comprehensive strategy for the financial system, and President Putin has assured me that this will be a priority for the future. I am looking forward to a detailed action plan in this regard. This is an area where the Fund will continue to work particularly closely with the authorities in the coming months and years, beginning with joint work on a Financial Sector Assessment Program.

I agree with efforts to ensure that the CBR's operations are transparent and that there are effective procedures in place for supervising its activities. However, it is important that new initiatives in this regard do not jeopardize the CBR's independence in the day-to-day conduct of monetary and exchange rate policies. International experience shows that such independence is key to inflation control.

Relations with the Fund

My visit marks a new phase in relations between Russia and the IMF. Russia does not need to borrow from the Fund, assuming that the worst scenario does not develop; and I am pleased that Russia is repaying us ahead of schedule, which improves our liquidity and hence our ability to help member counties in need. Instead, we will focus on assisting the Russian authorities to assess the economic situation and adjust economic policies as this situation changes. We are in almost daily contact with the key policy making institutions through our Moscow office, and we will continue to field missions to discuss the full range of economic issues facing the government.

We will also continue to provide considerable technical assistance to Russia. Priorities in this regard are tax policy and administration, expenditure control and management, central bank legislation and foreign exchange market liberalization, in addition to the aforementioned work on bank restructuring.

Apart from Russia's specific issues, I have also discussed a number of global economic issues with President Putin and Russian leadership. I welcomed the recent approval of a new law to combat money laundering and urged the authorities to give priority to effective implementation of this law. This would be important for the effort of the international community to cut off financial flows financing terrorism.