Yeltsin rescued by massive IMF loan

AFTER DAYS of grinding negotiations, the International Monetary Fund yesterday finally unveiled a huge emergency loan package to help Russia in its battle to defend the rouble and, ultimately, to fend off the risk of political and social turmoil.

The fund, with the World Bank and Japan, is set to give $22.6bn (pounds 13.5bn) to Moscow in credits over this year and next, after what the Kremlin's chief negotiator, Anatoly Chubais, described as the "toughest" bargaining yet between the two sides.

But some of the money - which folds in $5.5bn of existing loans with $17.1bn of new ones - will be dependent on whether Russia can fulfil its austerity package, first by propelling it through parliament and then by putting it into action.

The agreement brought cheer to Russia's emaciated stock and bond markets, sending them on a rare upward trajectory after a six-month period which has cut stock values by more than half. Moscow's benchmark share index, the RTS, closed at 157.20, a rise of more than 9 per cent.

While it will not resolve many of his problems, Boris Yeltsin is certain to be mightily relieved by the agreement, which follows his telephone calls last week to world leaders - including Tony Blair - to rally help in his hour of need.

The deal, which is expected to be confirmed by the IMF's board next week, provides President Yeltsin and his government with much needed breathing space. They will now be better placed to press ahead with promised improvements in revenue collecting, particularly taxes - and the introduction of a realistic tax code.

At the heart of Russia's fiscal crisis lie fears that the rouble will eventually crash, or be devalued, causing a return to hyper- inflation which would wipe out all confidence in the currency, deepen the 147 million population's economic woes, and possibly even threaten Mr Yeltsin's grip on the Kremlin. Voices demanding the President's departure have hardened considerably in recent weeks.

The economic fall-out of a rouble collapse would be certain to spread beyond Russia into most of the former Soviet republics and western Europe, particularly Germany. "The IMF has finally realised what others have realised," said one Western fund manager yesterday. "That Russia is just too big to fail."

The government, led by Mr Yeltsin's green-horn prime minister Sergei Kiriyenko, has for weeks been grappling with a liquidity crisis which has seen it struggling to raise money to roll-over its short-term debt - $30bn in the second half of this year alone. Russia intends to stop issuing short-term government securities, favouring instead seven or 20- year Eurobonds.

Investor confidence has been shattered by a combination of factors, sending interest rates rocketing. These include the Asian crisis; the loss of tax revenues caused by the plunge in world oil prices, and unrest in the labour market.

Last night the picture seemed a little brighter. "We are convinced that these resources will allow us to significantly strengthen the anti-crisis efforts of the government and will help to stabilise and strengthen the Russian economy," said Mr Chubais.

The IMF will give $11.2bn in new loans to Russia this year. Half this amount will hinge on the Russians carrying out their pledged reforms, and getting them through the Communist-dominated legislature. The rest of the money will be available during the remainder of the year. The World Bank is slated to chip in $4bn of new credits and Japan will give $1.5bn.

The White House hailed the accord as "a major step forward with Russia's reform efforts." This overstates matters. In truth, it has more to do with propping up the devil you know - Mr Yeltsin - and preventing the small achievements of market transition in this unstable, heavily armed, former empire from falling apart altogether.

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