MOSCOW — Russia has signed a memorandum with the International Monetary Fund agreeing on stiff austerity measures, Russian officials and Western diplomats said on August 10.
The secret memo involves a 10-point list of preconditions that had to be agreed before Russia could get the first $1 billion of a $24 billion aid package, the officials and diplomats said.
The deal sets Russia a target to cut inflation rates to under 10% a month and cut the budget deficit to 5% of gross national product. The budget deficit is currently 20% of GNP.
The agreement was reached in often acrimonious negotiations, according to the officials.
Russian officials describe the IMF as "unsympathetic" to their plight and "unyielding" in its demands. Western officials say the IMF has come away from the talks with a view of Russia as "untrustworthy".
The deal, formalised in a secret July 5 memorandum from acting Russian Prime Minister Yegor Gaidar to IMF president Michael Camdessus, foresees higher indirect taxes, a raising of import duties by 5% and cuts in subsidies for state industry.
The officials and diplomats expressed fear that the plan would cause social unrest as credit-starved and inefficient enterprises are forced to lay off workers. The plan will also be also opposed by Russia's vast military-industrial complex — which would be hardest hit by cuts in soft loans.
The deal will also require the breaking of promises by the government to increasingly vociferous critics of economic reform, including a pledge in
June to grant industries 500 billion roubles in concessionary loans.
Under the agreement, the ceiling for soft loans to inefficient industries has lowered to an undisclosed amount, the officials said. "We had little choice", says a Russian official.
"We need to prove to the West that we are serious and reliable", he added. "If we don't do that, our debt relief is at stake and our holdings abroad could be in jeopardy." With an $80 billion foreign currency debt, Russia is hard pressed to keep up with interest payments.
However, Western diplomats are doubtful. "The government has no intention of implementing the agreement", claimed one. "They see it as a way of attracting foreign investment."
Russian officials predict that the hiking of taxes and import duties will result this year in an extra 700 billion roubles for the treasury. At the same time, government spending would be reduced by an estimated 600 billion roubles.
The agreement also contradicts plans for a new energy policy approved by the Fuel and Energy Ministry, Russian officials said. The fuel plan, yet to be approved, was drafted by opponents of Gaidar's economic reforms.
Russia expects to produce a maximum of only 80 million tonnes of oil and gas this year, a 15% drop on 1991. The proposed policy calls for heavy investment in the oil industry and fuel price controls for the coming two years. Russian reformers and the IMF want fuel prices deregulated as soon as possible.
Russian energy experts suggest that the ailing oil and gas industry by 1993 may barely be able to meet domestic demand and be unable to export. Exports totalled 135 million tonnes in 1991 and, if cut,
would deprive the government of badly needed hard currency. Oil exports account for 67% of Russia's foreign currency earnings.
[From Inter Press Service/Pegasus.]