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IMF Director Announces New Plan to Resume Aid to Russia

By Paul Blustein

The International Monetary Fund agreed Wednesday to lend $4.5 billion to Russia, resuming its support for Moscow eight months after halting a previous rescue that ended disastrously with a collapse in the ruble.

The agreement, announced by IMF Managing Director Michel Camdessus early Wednesday evening, is primarily aimed at keeping Russia’s already-dire economic straits from worsening further. The amount the IMF agreed to lend is just enough to keep Moscow from defaulting on debts coming due to the IMF itself in the next couple of months, and although the Russian government already defaulted on some of its domestic bonds last August, a failure to pay the IMF would risk turning the country into an international financial pariah for a long time.

The accord, which must be approved by the IMF’s executive board, would be “a new step in the cooperation between the IMF and Russia,” Camdessus said in a statement issued after meetings with First Deputy Prime Minister Yuri Maslyukov and Finance Minister Mikhail Zadornov. Shortly after the IMF’s decision, the World Bank said it, too, will resume aid to Moscow.

The move reflects Russia’s immense geopolitical importance as a nuclear power rather than new-found confidence in its ability to put its economic house in order.

The government of Prime Minister Yevgeny Primakov has taken only modest steps to correct the woes that led to the plunge in the ruble last August and caused the IMF to suspend a $22.6 billion rescue package. In part because of resistance from the Communist-dominated parliament, Primakov has shown little appetite for restructuring the nation’s bloated, ailing industries or tackling other deep-seated problems, such as the government’s inability to collect taxes.

The IMF and the Western powers that control it are anxious to keep the country from destabilizing further, especially with elections for a new Russian president looming next year.