IMF reveals tough aid terms for Russia

WASHINGTON (Reuter) - A dramatic cut in the Russian budget deficit and a sharp reduction in inflation into single figures are two of the tough conditions set by the International Monetary Fund for the dollars 1bn (pounds 520m) assistance plan agreed at last week's Group of Seven summit in Munich.

The IMF gave details yesterday of the historic economic agreement with Russia and said a further accord that could open up the country to new loans could be expected later this year.

A senior IMF official said the agreement set the stage for billions of dollars of outside assistance and should make the country more attractive to foreign investors.

The accord requires Russia to reduce its budget deficit from about 17 per cent of gross domestic product to about 5 per cent by the end of the year.

It also calls for the country to reduce inflation, running at about 15 or 20 per cent, to single-digit levels. 'This is still high but a significant curbing,' the official told a press briefing.

The accord was reached this month on the eve of the G7 summit but the IMF was unable to confirm details at the time. The agreement should be completed before 10 August, when the IMF's executive board takes a two-week recess.

'The agreement . . . provides the basis for the fund to continue its negotiations (for a so-called standby loan),' the official said.

'I think the measures that we have agreed with the authorities and the commitments they have expressed, augurs well for future discussions,' he said.

The new standby agreement, expected this autumn, could provide an additional dollars 3bn, although the amount could be more, depending on the length of the financial programme.

The official brushed aside criticism of the IMF by the Russian President, Boris Yeltsin, during the negotiations, saying it was not unusual for a head of state to lambast the lending agency in the heat of talks.

The official said the IMF would watch the impact of the standby agreement on the stabilisation of the rouble.

Once the currency appeared to lose its volatility, the so-called stabilisation fund could be put in place.

Asked about reports that this might take place early next year, he said: 'Sure, why not, the sooner the better.' This dollars 6bn fund would be used to provide an underpinning for the rouble.

He said that if the reform programme did its job, the 'need for spending it (the fund) would be reduced to a minimum'.

The official made it clear that the former Soviet republics that continued to use the rouble would need to come to an agreement with Russia to harmonise monetary policy between the states.