19 August 2003 02:36
IMF still wonders if it put rouble at risk: Debate continues to rage about the west`s role in the collapse of the Russian currency five years ago. Andrew Jackreports
When Michel Camdessus, head of the International Monetary Fund, went to
Moscow in 1993, Viktor Chernomyrdin, the Russian prime minister, took him on
a wild bear hunting trip to the Zavidovo region.
That set the tone for what many see as a personalised and politicised
approach to economic policymaking that helped create the conditions for the
country's August 1998 financial crisis.
Five years after the simultaneous collapse of the rouble and debt default,
IMF officials argue that an over-valued, fixed exchange rate at a time of
irresponsible fiscal policy was at least partly to blame.
But debate is still raging about their own role in triggering the collapse.
While a rise in oil prices also played a large role, few question that
devaluation substantially aided Russia's fast economic recovery after
the crisis. It boosted domestic producers and suggested the previous exchange
rate had been too high.
To its critics, the IMF was obsessed with a fixed exchange rate without
considering the realities of the Russian economy - notably large budget
deficits, as spending was not matched by tax collection, and a high volume of
barter trade.
"I visited the IMF in Washington and it reminded me of the central
committee of the Communist party, with the same subsidised canteen and
isolation," recalls one Russian economist. "They were very smart in
finance but naive in other ways."
John Odling-Smee, the senior IMF executive responsible for Russia who recalls
a frenetic period of travel to and from Moscow during 1998, says:
"It's true that following the Asian crises there was a general
shift in opinion away from the consensus among economists for fixed exchange
rates and we had been part of that (view)."
Another factor was the lack of reliable information.
One IMF official says the data available in the period leading up to the
crisis suggested the financial system was solid and the rouble competitive,
with productivity by local industries that competed with imports appearing to
improve, alongwith import penetration.
"We didn't put our foot down enough, but we were flying
blind," he says. "We did not really know the foreign exposure of
the Russian banks . . . because the central bank itself did not have a
systematic view."
But a third issue was the political reality and the IMF's own ability or
willingness to implement the policies it was advocating in theory. The
official says it was the Russian government that insisted on a fixed rate,
while the IMF was by late 1997 starting to advocate a gradual shift towards a
floating rouble.
Then the government announced a three-year stable currency policy designed to
offer certainty to investors until after the 2000 presidential elections.
"Rouble stability was seen by Russians as one of the main
accomplishments of the Yeltsin era," he says. "If we had opposed
it, there would have been a run on the rouble. In retrospect, we should have
insisted on a more flexible approach."
Mr Odling-Smee agrees. "What I regret is that we didn't find a way
of persuading them to be tough on the fiscal side. But there was not any more
leverage we could have brought to bear."
However, Augusto Lopez-Claros, former IMF resident representative in Moscow,
argues that the fund had enormous influence and could have stopped disbursing
loans. Instead, it continued to give support, ignoring Russia's failure
to raise more revenues and reduce controversial tax breaks.
It also ignored abuses, including controversial loans-for-shares schemes in
1995-97 by which state assets were sold to insiders in cut- price deals.
For many critics, that reflected pressures for continued lending including
direct lobbying by Mr Chernomyrdin to Mr Camdessus, against a backdrop of the
"Bill and Boris show" of support by then President Bill Clinton for
his counterpart Boris Yeltsin.
"The IMF was always hoping that fiscal adjustment was just around the
corner," says Mr Lopez-Claros.
"But this strategy did not work, and over time the government
accumulated Dollars 22bn of debts to the fund, which would be a heavy burden
on the Russian population and impose constraints on other, sometimes vital,
areas of spending."
If the IMF's focus on exchange rate policy has since diminished and its
experience broadened, its recent loan to Turkey with heavy US endorsement
suggests the political context in which it operates has not.
The August 1998 crisis was a lesson for Russia's political class which
has since implemented on paper the fiscal responsibility demanded by the IMF.
But President Vladimir Putin's insistence on rapidly paying down
Russia's foreign debts also means IMF leverage in steering future
economic policy in the country has diminished still further. Growth without
reform, Page 17
[FTI [The Financial Times]] |
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