Keeping Russia on a Short Leash, IMF Readies a $6.3 Billion Loan

RUSSIAN President Boris Yeltsin and the head of the International Monetary Fund were due to agree today on a massive loan that is seen as a keystone of Russia's economic stability this year.

A deal between Mr. Yeltsin and IMF chief Michel Camdessus on the $6.3 billion loan, after nearly six months of negotiations over the strings attached, seemed assured in the wake of recent Russian moves to push economic reform forward, analysts here say.

Mr. Camdessus's decision to come to Moscow personally to finalize the agreement signaled the importance that the IMF attaches to the Russian government's pledges that it remains committed to free-market reforms, regardless of such political setbacks as the war in Chechnya.

The IMF loan, which brings the total of IMF lending to Moscow to $10 billion, will help bridge Russia's budget deficit.

If the money had not been forthcoming, Russian officials warned, the yawning deficit would have opened the road to a renewed bout of hyperinflation. That prospect, and the danger of unpredictable political upheavals in its wake, is as unnerving to Western political leaders as to Moscow.

With the loan apparently secured, however, the government is in better shape to keep the economy under control, even though its strict terms will mean continued belt-tightening for most of the population. The government and parliament seem to be betting that Russians will endure this hardship: Parliament voted two weeks ago to approve Russia's 1995 budget - a harshly austere document that cuts spending on a wide range of government programs and increases taxes just as heavily.

That fiscal restraint, which the IMF had demanded as a sign of commitment to reform, cost Yeltsin some of his dwindling supply of political capital in the country. When parliament voted to increase the minimum wage threefold - a popular measure but one that would have bust the budget - Yeltsin was obliged to use his presidential veto.

Some economists here are doubtful that the austerity set out in the budget will last all year, however, and fear that the government may be forced to relax its spending grip.

The costs of the war against separatist rebels in Chechnya, for example, estimates of which start at $1 billion, are not included in the budget.

The powerful agricultural lobby, which has long lived on the sort of subsidies that Moscow can ill afford today, is gearing up for an assault on the treasury as spring sowing season approaches.

And with parliamentary elections due at the end of the year, the government might be tempted to pump money into the economy in advance of the polls, to improve people's living standards.

Certainly, the government seems to have been ambitious when it promised the IMF that monthly inflation - which stood at 11 percent in February - will be down to 1 percent by the end of the year.

Aware of such potential pitfalls, the IMF stood firm on one of the demands that Russian officials resisted until the last minute -

that the loan will be handed out in monthly slices of $500 million.

That condition, which officials here had said was humiliating, allows the IMF to keep a very close eye on the Russian economy. Theoretically, it also allows the Fund to cut off the credit if things go wrong.

Such a move, however, would cause an enormous scandal, and the loan agreement expected today is generally seen as a vote of confidence in Russia's continued efforts to reform its socialist economy along Western lines.

Yeltsin went out of his way last month, in his annual address to the nation, to stress his commitment to free-market reform, and in the last few weeks he has issued a series of decrees tidying up corners of the economy that IMF negotiators had said needed attention.

Nevertheless, many bankers here still harbor doubts about the government's plans to finance the deficit, which the budget predicted would be around 8 percent of the country's gross domestic product.

In a move seen as encouraging for reformers, parliament recently passed a law forbidding the Central Bank to give the government unbacked credits - a traditional Russian financing trick. But without that recourse, the treasury's only way of supplementing the IMF revenues will be to sell an unprecedented number of government bonds - a challenge it has yet to face.