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Russia Likely to be Next IMF Recipient

© Bryan Johnson

U.S. Deputy Treasury Secretary Lawrence Summers stated in late June that the U.S. was standing ready to aid Russia if its economy goes into a tailspin. Specifically, Summers indicated that the U.S. would push for a new $10- to $15-billion aid package, primarily from the International Monetary Fund (IMF). As such, Summers is using the threat of the Russian economy collapsing as an incentive for lawmakers to pass appropriations bills increasing U.S. funds to the IMF by $18 billion [ Editor's Note: (For previous articles on the IMF, see Bretton Woods Revisited: IMF; Congress Gears Up For IMF Funding Debate; Congress Deals IMF Major Setback; IMF Skepticism Grows in Congress; New IMF Strategy Emerges in Congress; Congress Tackles IMF Tax Subsidy Issue and American Farmers Fall In Love With IMF - Editor - BTJ .]

The problem arose in May when a mass exodus of foreign and domestic investors began dumping their Russian-held investments (government bonds, corporate stocks, rubles, etc.). The causes of this panic were many: the lower house of the Russian parliament (the Duma) passed legislation limiting foreign ownership of stock in the national electric monopoly; there was also the failure of the partial privatization of Rosnet, a large government-owned oil company, to attract private investors, and the failure to adopt sound financial services reform; there was an increase in organized crime and corruption, and there were many other subtle and not-so-subtle causes. The bottom line was: investors got spooked.

In the meantime, the Russian economy seems to have stabilized, but it is far from recovered. That is why the Clinton Administration wants the IMF to stand ready with new funds to help Russia if it begins to slide again. But what is missing in this analysis so far is some perspective. Since 1992, Russia has become one of the largest IMF recipients, an organization it did not even belong to until 1992.

So far, Russia has borrowed some $18 billion from the IMF. Indeed, there is a growing number of IMF critics that question whether the $18 billion Russia already has received has done anything to help the country adopt sound economic policies and long-term economic reform. For all its progress since the dismantling of the Soviet Empire, economic freedom in Russia remains elusive. Specifically:

1) Russia's privatization program is non-transparent and offers little investment opportunities to investors. What opportunities do exist, the process is mired in corruption and bureaucratic red-tape.

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