Asia Times: Primakov faces critical talks with IMF



	March 24, 1999	atimes.com

Central Asia / Siberia

Primakov faces critical talks with IMF
By Abid Aslam and Sergei Blagov

WASHINGTON - Russian Prime Minister Yevgeny Primakov flies into Washington Tuesday for critical talks with the International Monetary Fund (IMF) and an attempt to patch up strained relations with the United States.

Primakov will hold separate talks with President Bill Clinton, Vice President Al Gore and IMF Managing Director Michel Camdessus.

Russian delegates hope they can wring new funding from the IMF to avoid defaulting on Russia's foreign debts. More than $17 billion falls due this year, $4.8 billion of it owed to the Fund.

Other prickly topics are on the agenda, including the threat of imminent North Atlantic Treaty Organisation air strikes against Yugoslavia, the alleged transfers of Russian military technology to Iran, and U.S. plans for a missile defence system that Moscow says will undermine the 1972 Anti-Ballistic Missile Treaty.

According to U.S. officials and political analysts, Primakov will face pressure to step up economic restructuring and avoid last August's debacle when emergency loans meant to defend the ruble were diverted out of the country under the nose of the IMF. The Russian currency went into free fall, triggering a default on some overseas debt.

''Clearly what's most important for Russia is that Russia carries through a strong reform program,'' said U.S. Deputy Treasury Secretary Lawrence Summers. ''That will be an important part of the economic discussions that U.S. officials will have with Prime Minister Primakov this week."

Failure to pay foreign loans would mean a collapse of relations with both the IMF and the World Bank and, by extension, the overseas investment community, placing Russia among only seven other countries to have defaulted on loans to the international financial institutions.

IMF officials emphasize that default would cost Russia dearly. The former superpower is burdened with $150 billion in foreign debt.

Michael Mussa, the Fund's chief economist, warns that if Russia falls into arrears with the IMF, then it would also wreck the country's chances of a debt-relief deal with the Paris Club of government creditors. In addition, officials here have said that efforts to reschedule Russian commercial loans with the London Club of private creditors also would be harmed.

Russian analysts, however, argue that the IMF is as desperate to lend to Russia as the latter is desperate to borrow - because both stand to lose from default.

The IMF has been criticized for its track record in Moscow, but a break in relations would signal total failure, argues Oleg Ostroukhov, senior researcher at Moscow's Institute of World Economic and International Relations.

The IMF's last bail-out program in Russia unraveled within weeks of being put in place in July 1998, fueling debate here over ''who lost Russia'' - or whom to blame for the failure to transform the heart of the former Soviet Union into a vibrant capitalist economy and stable ally of the United States.

Washington officials fret about the ways in which U.S. interests would be harmed if Russia were cast into isolation. These include widescale secession and the break up of the Russian Federation, a return to communist rule, and nuclear anarchy.

Primakov is Russia's third prime minister in 12 months and is credited with restoring some stability.

Because his cabinet includes a number of communists, ''Primakov's government is the first in post-communist Russia that can claim to be a government of national unity,'' argues Leonid Fedun, a founder of the Lukoil Oil company.

Nevertheless, the presence of communists in the cabinet is said to cause some friction with Washington and the IMF. Russia's chief negotiator with the Fund - First Deputy Prime Minister Yuri Maslyukov, a communist parliamentarian - has accused the agency of putting ''indecent'' pressure on Russia to post budget surpluses by cutting state spending and raising tax revenues in the midst of a recession.

Maslyukov's colleagues in the Duma, the Russian lower legislative chamber, rebelled against the IMF this month by enacting a reduction in the value-added tax paid by consumers. The idea is to ease a consumer spending crunch amid expectations of deeper recession in the year ahead.

From the IMF's point of view, that move will reduce income from Russia's most easily-collected tax. Russian negotiators appear reconciled to putting off the tax cut until the beginning of next year.

For their part, IMF officials insist politics will play no role in their decision on whether to resume lending.

An agency delegation returned from Moscow Sunday and briefed Camdessus in advance of his meeting with Primakov, scheduled for Wednesday. Agency spokesmen say the sides have made progress in their negotiations over budget targets, monetary policy and tax collection.

While the Russians say Primakov's talks with Camdessus are aimed at reaching final agreement, Fund officials suggest the discussions will continue in Moscow after the premier returns home.

Primakov might seek to enlist Clinton's support in dealing with the IMF but even the U.S. president - who often emphasizes the need to maintain stability in nuclear-armed Russia - has been guarded about the prospects of an IMF deal.

''I'm hoping we can reach an agreement that will permit the IMF program to go forward,'' he told reporters last week. ''But it will only work if the money does not turn around and leave the country as soon as it is put in."

(Inter Press Service)