Wary IMF gives Russia a hand

An agreement on new loans for Moscow, reached March 29, brings some

It looked this week as if Russia could slip away from the West in its outrage over NATO's bombing of Yugoslavia.

But it was saved from the brink of financial isolation with a deal struck just in time with the International Monetary Fund (IMF).

The outline agreement, reached March 29, saves Russia from defaulting further on its debts and becoming an international financial pariah.

And an accord with the world's premier lending body sends a signal to other creditors to release billions of dollars in further loans frozen since the August financial collapse, when Russia devalued its currency and defaulted on some debt.

A political decision

Details on the deal are vague, but the message is clear: The West is not going to give up on Russia.

And the IMF decision to lend more money to a country that has already squandered billions of IMF dollars was partly rooted in politics.

The desire to save Russia from social chaos or getting militarily involved in Yugoslavia was great.

"Certainly there was a strong political element. American and Western politicians realized that this was not the right time to push Russia into a corner and isolate it," says Yevgeny Vittenberg, head of the Intelbridge financial consulting company, based in Moscow.

The deal struck with IMF managing director Michel Camdessus is the first sign of Western support since Russia plunged into economic crisis Aug. 17, defaulting on some debt and sending foreign investors running.

The IMF, from which other lenders take their lead, said it would not give over another cent until Russia came to grips with the misspending, poor tax collection, huge wage arrears, and corruption that had siphoned off loans in the past. Many IMF officials continue to express concern about what they consider Moscow's unrealistic budget plans.

But the country's strategic importance - it has a huge nuclear arsenal and restive ultranationalists - make it a special case.

Prime Minister Yevgeny Primakov was due to discuss a deal with the IMF in Washington last week, but abruptly turned his airplane around across the Atlantic when he heard about the NATO strikes on Russia's ally Yugoslavia.

Mr. Camdessus then flew to Moscow to hammer out the deal.

Details still in works

Full details are expected when IMF technical advisers arrive, probably next week. Media reports said the loan totaled about $4.8 billion, with the first of four payments to be made in May.

That amount would only cover what Russia owes the IMF this year in debt repayments.

First Deputy Prime Minister Yuri Maslyukov said March 30, however, that the exact figure would be discussed next week.

Russian officials said the IMF had accepted its 2 percent primary budget surplus (a small budget surplus before the government pays to service its debts), although the Fund continued to insist that Russia increase budget revenue.

Will tax cut be halted?

Reports by financial sources that Russia would delay cuts in the value-added tax - an IMF demand as it is one of the few taxes successfully collected - could not be immediately confirmed.

Among the piles of other loans that can now be released are $800 million from Japan, more than $1 billion from the World Bank, and more from the European Bank for Reconstruction and Development.

The IMF agreement also serves as a green light for the Paris and London Clubs of creditors to restructure billions of dollars of Soviet-era debt.

The deal was reached after months of IMF resistance to signing over more money to Russia. The Fund was fed up with rampant corruption and billions of dollars in capital flight.

Russia's credibility dipped further with the recent revelations that the Central Bank had duped creditors by parking reserves including IMF money in an offshore fund.

But this time, according to financial sources, the bulk of the money probably would not enter Russia and would simply be transferred within the IMF to write off past debts.

Further encouraging the IMF were some signs that Mr. Primakov is trying to tackle problems.

Russia has quietly paid off $5 billion in debts since the crisis began late last summer - nearly $1 billion of it to the IMF in principal and interest in the first quarter of this year.

Authorities are pressing ahead with privatizations, crackdowns on corruption, and bank restructuring. Primakov has restored political stability. And fears of hyperinflation and a sinking ruble have not, so far, been realized.

Russia would have defaulted if the IMF had not come through. This year a total $17.5 billion falls due - nearly the entire amount of the $20 billion budget revenue envisaged. Of that amount, only $9.5 billion was set aside for debt servicing.

And the deal came just in time, with $4 billion in debt and service payments falling due in May.

The long-term situation remains worrying - with a total of $100 billion owed in Soviet debt and $50 billion in Rus-sian debt.

But Moscow has bought time for now, and can probably expect to buy more in the future.

*John van Schaik in Moscow contributed to this report.