I’ve never really researched much about the relationship between Russia (my native country) and International Organizations until last week and pretty much all I knew was that we’ve been trying to join WTO for a long period of time and still unsuccessful. So, I’m not going to judge or criticize it. I’ll just try to put together some pieces of information I’ve found and summarize some interesting articles and reports of those international organizations to help first of all myself to understand, how IMF affected Russian economy. I will focus on the IMF’s role in the Russia’s transition to market economy.
Russia and the IMF
Based on:
“Russia and the IMF: Power Games” by Dmitri Niarguinen
and “Russia and the IMF” by Nigel Gould-Davies and Ngaire Woods (1999). International Affairs pp.1-22.
The history of Russia’s relationship with International Monetary Fund was comparatively short but full of controversies. At one time Russia was the largest debtor of the IMF... In 2000 the relationship normalized and basically came to an end. The IMF has approved of the Russian economic performance and Russia, in turn, has announced a non-borrowing status and has placed priority to debt repayment and was actually ahead of the schedule – it paid the money off by 2004, according to the Central Bank of Russia. (http://www.cbr.ru/eng/statistics/print.aspx?file=credit_statistics/debt_e.htm).
Although Russia got its 1st lending from the IMF in 1992, the relationship between the country and the organization started in 1988.
Nigel Gould-Davies and Ngaire Woods named five phases of Russia/ IMF relationship as follows:
Phase 1: Advice but no money (1988- July 1991)
During the last years of Soviet Union, the country was on the edge of political liberalization. The need for reforms was obvious, but Russian foreign debt was huge, so the Soviet government started discussing membership of the IMF. But the Fund was reluctant to grant the USSR full membership. Only in October 1991 ‘associate membership’ was granted limiting Soviet Union to technical assistance and advice but no call on the IMF’s funds.
In July 1991 the USSR applied for full membership of the IMF.
Phase 2: First attempts at stabilization (August 1991 – September 1993)
In order to become a full member and get financial support, the country had to undertake economic reforms suggested by the Fund. So, the country started its programme of privatization, liberalization and stabilization designed to create a full market economy.
Russia got its first $1 billion of the IMF support 7 months after the reforms started, in July 1992.
This phase already didn’t go the way it was expected to. As Gould-Davies and Woods said, the IMF’s technical advice to Russia proved wrong in some respects, and it would later admit that deep structural reform at that time was crucial to Russia’s transition.
Phase 3: Reform and Political Change (October 1993 – March 1995)
As a result of the Phase 2, by 1994 inflation has risen from 4% to 15%, by January 1995 it went up to 18% - that was the cost of using easy credit to resolve economic problems. The government started looking for a non-inflationary ways to finance the budget. This led to a new relationship with the IMF, which was also trying to find more effective ways of helping Russia.
Phase 4: Stabilization and the rise of the oligarchs (March 1995 – November 1997)
This phase of the relationship was more successful. Money lending was combined with strict arrangements and tight monitoring. In April 1995 Russia got $ 6.8 billion, which was the largest IMF loan to date with the exception of the Mexican bailout. By the end of 1995 the IMF was satisfied with Russia’s progress, and as a reward agreed on $10.2 billion loan, wich would be disbursed monthly over the peiod 1996-1999.
The stable exchange rate and 4% inflation were the results of the Russian government and the IMF collaboration.
Phase 5: The crash (October 1997 – September 1998)
Falling oil prices due to the East Asian crisis resulted in the continuing revenue shortfalls, which, together with high debt service burden, led to crisis in the summer of 1998. After difficult negotiation the IMF agreed to provide $11.2 billion of fund for currency support which, with contribution from the World Bank and Japan, made a package of $17 billion.
...
After the 1998 crisis everyone was predicting a long recession and uncertain relationship with the IMF, but the predictions didn’t come true. Starting with the year 2000, the economy of Russia was growing fast and in 2001 a non-borrowing status was declared.
Rassia’s relationship with the IMF up to 2000 were full of controversies. Many people criticized the role of the IMF in the transition of Russian economy. For example:
“The [Russian] government has accepted the basic principles and advice of the IMF decision-makers. These decisions have resulted in the current chaos which has not only led to the total collapse of the Russian economy, something unprecedented in peace time, but also is bringing the whole world economy closer to recession” - Boris Kagarlitsky, an economic advisor to the Duma (1998).
“Throughout these years, the IMF was telling us what budget Russia needs. And Russia was following the instructions. As a result, the finances of the country are destroyed, the military capability is nil, and industrial enterprises are abandoned. Thanks to the IMF, the once powerful country turned into an invalid” - Duma deputy Stepan Sulakshin (1997).
I personally think that during those 10 years of the Russia-IMF relationship, there were ups and downs, but Russia came a long way from communist economy to market economy with the help of the IMF. The fact that Russia had to comply with terms of the agreements in order to get financial support, at the end had helped the country successfully undertake necessary reforms, such as privatization, liberalization, banking reform; it also helped Russia to take under control inflation and currency exchange rates and get rid of export tariffs.
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