Financial Times (UK)

7 December 1999

[for personal use only]

Comment / Personal View

Blood and war form the true IMF audit

It is Russia's war in Chechnya that should delay loans, rather than questions

over financial safeguards, writes David J. Kramer

The author is an associate director of the Russian programme at the Carnegie

Endowment

>From 1994 to 1996, when opposition to the first war in Chechnya was strong

within Russia, Bill Clinton, the US president, sided with the Kremlin by

comparing Boris Yeltsin to Abraham Lincoln and the Chechen war to the American

Civil War.

Today, tepid US criticism of the Kremlin's renewed offensive in Chechnya runs

counter to the strong support in Russia for the government's actions.

European leaders have been more outspoken in expressing their opposition to

Russia's brutal campaign. Yet the criticism at last month's summit of the

Organisation for Security and Co-operation in Europe in Istanbul was

overshadowed by a defiant Mr Yeltsin, who told the west to mind its own

business. The leadership in Moscow had decided there was little the west could

do to force Russia to change course.

Sadly, they are right. This is not Kosovo and Serbia; western military

intervention is out of the question.

Nevertheless, we can do something to demonstrate moral leadership and ensure

that we do not fund Moscow's brutality. The Clinton administration is

reportedly considering action on two fronts: holding up the next $640m

instalment of the International Monetary Fund's loan to Russia and delaying a

$500m loan to Tyumen Oil Company from the Export-Import Bank, a US government

trade promotion agency. Mr Clinton should follow through on both threats.

The case against the Ex-Im loan is clear. The Clinton administration should

not

be promoting trade while bombs fall in Chechnya. The loan to Tyumen Oil should

never have been considered at all: Tyumen has been involved in a nasty dispute

with BP-Amoco over control of another Russian oil enterprise, and no US

government agency should be involved with a Russian enterprise engaged in

flagrant asset stripping and the trampling of shareholder rights.

Suspension of the International Monetary Fund loan raises more complicated

issues. The current programme, agreed in April, began in late July with the

release of the first of seven $640m instalments. Western governments, anxious

to placate Russia during Nato's bombing in Kosovo and eager to help Moscow

avert a default on its foreign debt, pressured the IMF to resume lending. The

entire $4.5bn is to stay with the Fund to help Russia pay its debts to the

lending agency and is not transferred to Moscow. But the second instalment,

originally slated for release in October, has been held up pending an

investigation into alleged Russian diversions of past IMF loans.

Since the IMF resumed its support for Russia in July, Russia has faced

changing

sets of criteria for the release of the second tranche, with calls for more

audits and safeguards against misuse of the current loan programme. But moving

the goalposts has only succeeded in annoying Russian officials unnecessarily.

We should simply tell the Russians they are not getting the next instalment -

not because of failure to meet variable criteria, but because of what

Russia is doing in Chechnya.

The IMF's money is fungible and would free up an equivalent $640m in Russia's

coffers to continue funding the war in Chechnya.

Michel Camdessus, the outgoing IMF chief, recently hinted that Russia's

campaign against Chechnya could lead to suspension of the IMF money. Moscow

reacted with outrage. Sergei Stepashin, a former prime minister, called Mr

Camdessus's comments "political blackmail". In the west, similar reservations

have been registered about "politicising" the Fund.

Such criticisms ring hollow if one looks at how the IMF has recently dealt

with

Russia. On three occasions, the Fund, under political pressure from western

governments, went ahead with multibillion dollar loan packages even though

Russia had not met the IMF's economic criteria: in March 1996 (three months

before Russia's presidential election); in July 1998 (with Russia on the verge

of economic collapse); and in April 1999 (during Nato's campaign against

Kosovo, which Russia opposed). The difference now is that the Fund would be

suspending, not releasing, funds for political reasons.

In the light of Russia's widespread violation of human rights through its

indiscriminate bombing of Chechnya, it would be naive, if not unprincipled, to

suggest that IMF decisions should be made in a political vacuum. Suspending

the

IMF loan would undoubtedly raise tensions with Russia, but given that there

are

few other measures the west can take to register its outrage, it is a price

worth paying.

Given the lack of influence and leverage we have over Russia, we should not

pretend that suspending the IMF and Ex-Im loans will effect a change in

Russian

policy toward Chechnya. At the same time, we should not maintain a

business-as-usual approach to Moscow.

The Clinton administration abandoned its moral leadership role in the 1994-96

war. It should not repeat that mistake this time.