International Financial Institutions
97. The United Kingdom has been heavily involved
in western multilateral efforts to assist Russia's market transformation
as a result of its membership of the G7 and the Paris Club,[252]
as well as its status as a major shareholder in the International
Monetary Fund (IMF), the International Bank for Reconstruction
and Development (World Bank) and the European Bank for Reconstruction
and Development (EBRD). The IMF has played the leading role in
these efforts, although there has been some debate as to the effectivness
of this role. The evidence we have gathered has highlighted a
number of problems with the IMF's involvement in Russia. Russia
has not borrowed from the Fund under "normal" IMF conditionality—political
pressures have always ensured that Russia has been given softer
terms. Yet it has never fully implemented even the more relaxed
conditions to which it has agreed. Fitch-IBCA's David Riley told
us that the Fund has never been allowed to "play by the rules"
with Russia, while John Lloyd drew attention to the way in which
lax conditions have sent the wrong signals to Russian governments.[253]
The Fund's ability to discipline Russia has been limited by the
readiness of G7 governments (especially that of the United States)
to press for the release of IMF funds for political reasons.[254]
G7 pressure has, in turn, been associated with western efforts
to purchase Moscow's co-operation over international issues (e.g.
Bosnia and Kosovo) and its determination to support particular
political figures and groupings in Russia.[255]
98. The consequence has been to damage the Fund's
credibility in Russia and elsewhere; to convince many Russians
that the IMF is a tool used by the western powers to meddle in
Russian politics; and to associate the Fund and its major shareholder
governments with economic policies that have often run counter
to their prescriptions but that they have nevertheless helped
to finance. While the IMF does not and cannot operate in a political
vacuum (as current developments in Chechnya remind us), it is
important to de-politicise as much as possible the IMF's involvement
in Russia and in particular to avoid the appearance or the reality
of IMF assistance being used as an instrument to advance the interest
of particular actors and groups on the Russian political scene.
99. There are, moreover, questions about the suitability
of the IMF for the task assigned to it in Russia.[256]
The Fund's role in ensuring a reasonable degree of macroeconomic
discipline has been important. However, as we discuss above,[257]
there is far more to Russia's transformation than macroeconomics.
As John Thornhill, Professor Brown and others have noted, institution-building
and establishment of the rule of law are critical.[258]
It is not clear that IMF conditionality, which has hitherto focussed
on fiscal and monetary targets, is the most appropriate way to
advance reforms of this type: sometimes the drive to meet current
macroeconomic targets conflicts with the requirements of long-term
structural reform. Indeed, we gained the impression in Moscow
that officials of both the IMF and the World Bank, as well as
external observers, increasingly see structural reforms as the
key tasks for the future. These are tasks for which the Fund is
less well suited, not least because IMF programmes unfold over
relatively short time periods in comparison with the time-scales
involved in major structural reforms. This makes it far easier
to link IMF facilities to current macroeconomic management, with
current disbursals linked to actual performance, than to long-term
microeconomic reform policies.
100. As John Thornhill has pointed out, a refocusing
of the EBRD's priorities to support structural reform, along with
greater emphasis on assistance via the Know How Fund, working
in co-operation with NGOs, could do more to advance micro-level
structural change.[259]
This is also an area where the World Bank is better equipped than
the Fund. In addition, this would have the added political benefit
of channelling a smaller share of assistance into the federal
government and the central banks and directing a larger share
to the regions and to recipients much closer to "ground level".[260]
The CBI notes that: "British expertise is recognised as world-class
and there are both generic and specific advantages of assisting
the growth of a sound institutional framework."[261]
101. In the current environment, greater emphasis
on alternative channels of assistance would have several advantages.
Any assistance rendered to the federal Russian government during
the current Chechen campaign could be seen, indirectly at least,
as a source of financing for that war. However, programmes run
by the World Bank and the EBRD can be more narrowly targeted in
areas of mutual interest to Russia and the United Kingdom. These
programmes may finance expenditures that would not take place
at all in the absence of assistance and they therefore cannot
so easily be seen as releasing resources for the war. By contrast,
IMF funds made available to cover debt repayments replace funds
Moscow would have to find elsewhere in the absence of such support.
Placing less emphasis on the IMF would also, paradoxically, make
the Fund's work more straightforward, since there would be less
of a tendency to see the IMF as an "all-purpose instrument".
By trying to use IMF leverage to pursue too many goals simultaneously,
the United Kingdom and its western partners risk achieving none
of them. While recognising the importance of the IMF's continuing
engagement in Russia, we recommend that the Government should
give greater consideration to other channels (the G7, the World
Bank, the EBRD) for promoting structural reform, and should seek
to persuade the rest of the G7 of this view.
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