• ACI Russia

08/29/1998 01:46:17 FOCUS-IMF says bailout for Russia awaits reforms

(Updates throughout)

By Adam Entous

WASHINGTON, Aug 28 (Reuters) - The International Monetary

Fund and the United States told Russia on Friday that bailout

funds were on hold until Moscow proved it was reforming its

economy and not retreating to a Soviet-style command economy.

IMF Managing Director Michel Camdessus told a news briefing

the lending agency could still approve a payment from a $22.6

billion international rescue package for Russia in September --

but only if acting Prime Minister Viktor Chernomyrdin moved

swiftly on market-oriented reforms.

The United States, the IMF's largest and most powerful

contributor, made clear that July's rescue deal would have to

be renegotiated to take account of new circumstances.

"For Russia to go forward with the IMF would require a new

set of understandings, appropriate to current circumstances,

about Russian policy actions," Deputy Treasury Secretary

Lawrence Summers told a separate news briefing.

Russia clinched the $22.6 billion IMF-led rescue package in

July in a last-ditch effort to pull out of crisis.

The IMF and Western powers had hoped the worst was over,

but conditions deteriorated almost immediately.

Yeltsin fired the entire government of Prime Minister

Sergei Kiriyenko after he was forced to devalue the rouble and

default on some foreign debt, and he brought back Chernomyrdin,

whom he had dismissed a few months earlier.

Camdessus, who met Chernomyrdin on Wednesday, said he had

told the Russian prime minister there would be no international

support if Russia imposed state control on its economy and

returned to the price and trade controls of Soviet days.

"This international support will wait for clarity of the

orientation of the government and strength of support in

parliament for measures, particularly on the revenue side," he


"(State controls) would inevitably lead to command economy

methods and hyperinflation, with consequent dire social

consequences," Camdessus said. "This would lead to disaster."

With markets and the rouble in free fall, Yeltsin has

reached out to the communist-dominated parliament. Communist

speaker Gennady Seleznyov said the president and parliament

were in broad agreement on a plan that would step up state

control of the economy to help stem the crisis.

Camdessus and the United States warned Chernomyrdin against

going too far. "No one is nostalgic for the Cold War," White

House National Security Adviser Sandy Berger said.

Camdessus said Chernomyrdin understood the grave situation

facing his country and was ready to act to solve its problems.

"The sooner these reforms can start, the better. There is

no time to waste if the adverse impact of the crisis on the

Russian population is to be minimized and growth restored," he


He said the IMF was ready to look at "different monetary

frameworks" in efforts to get the rescue program back on track

and did not rule out a currency board, a rigid system that

would fix the rouble to another currency, such as the dollar.

But Camdessus said a currency board would be difficult to

implement in Russia, where the banking system is in tatters

after the currency crash and debt default.

In uncharacteristically blunt words, Camdessus told Russian

authorities their unilateral debt restructuring was "extremely

unfortunate." He urged the government to work with private

creditors to "find a cooperative response to their problems."

He said Russia could still win a payment from the bailout

package in September. The IMF initially said it expected to

disburse a $4.3 billion installment after Sept. 15.

"If you are able to do the homework by a given date in

September, if all actions needed to restore stability are

taken, if you are able to put the (Extended Fund Facility)

program back on track and, I should say, to strengthen it ...

then the IMF will be there," Camdessus said.

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