The author is Deputy Director of the International Monetary Fund’s European II Department. He is grateful to Daniel Citrin and John Odling-Smee for their helpful suggestions; he is, of course, solely responsible for the views expressed in this paper. Unless otherwise noted, references to the “IMF” relate to the staff working on Russia, not to the Executive Board or to management.
See, for example, International Monetary Fund, World Economic Outlook, May 1993 (pp. 47, 50); Motley, Brian “Growth and Inflation: A Cross Country Study,” Working Paper 93-11, Federal Reserve Bank of San Francisco, 1993; and Lucas, Robert E., Jr., “On the Welfare Costs of Inflation.” University of Chicago: 1994.
See Ickes, Barry, Annette Brown, and Randi Ryterman, “The Myth of Monopoly; A New View of Industrial Structures in Russia,” October 1993.
While it is too early to test for long-term relationships, it is clear that those economies in transition that have succeeded in bringing down inflation rapidly (like the Czech Republic, Estonia and Poland) have also experienced a relatively early resumption of output growth.
The evolution of the IMF’s attitude vis-á-vis the ruble area, which could be the subject of a separate paper, has often been misrepresented. To make a long and complicated story short, the Fund staff did not try to “save” the ruble area, as is sometimes alleged. Rather, it tried to eliminate the inflationary bias built into the ruble area by proposing at the interstate conference of Tashkent, in May 1992, a set of rules for a coordinated monetary policy. The proposal failed, largely because it was torpedoed by the Russian delegation—although, in light of hindsight, it is fair to say it may not have worked had it been approved because several countries in the area probably would not have followed its relatively strict rules. Convinced that the ruble area could not be reformed, we sought to persuade countries that a rapid choice had to be made between (i) remaining in the ruble zone with a single monetary authority; and (ii) issuing a separate currency. Russia’s decision on July 1, 1992 to discontinue the automatic extension of CBR credit to other central banks led to the de facto fragmentation of the ruble area and to the appearance of separate deposit currencies in other FSU countries. However, the quest for a clear-cut solution remained elusive as supporters and adversaries of the ruble area continued to fight, even within Russia. The CBR’s sudden withdrawal of pre-1993 ruble notes in July 1993 and the collapse of negotiations between Russia and Kazakhstan on a monetary union in November of that year sealed the fate of the old ruble area.
To some extent, the buildup of interenterprise receivables, which is often confused with the accumulation of arrears, has represented the normal growth of inter-enterprise credit. This is a welcome development that calls for government action in the form of market supervision and regulation, but not for credit expansion.
See, for example, Testimony to the Committee on Banking, Housing and Urban Affairs of the U.S. Senate, February 5, 1994.
This is probably correct in the case of debt rescheduling, since cash payments by Russia probably would not have been much larger in the absence of the agreements. As for export credits, they should have provided cash financing to the budget had the Russian authorities collected counterpart fund from the enterprises.
A notable exception has been the grants provided by Germany to finance the withdrawal of Russian troops from German territory.
The pitfalls of excessive reliance on interest-bearing government debt as a tool of deficit financing in a context of high inflation are illustrated by the Brazilian case. See, for example, Marcio G. P. Garcia, “Avoiding some of the costs of inflation and crawling towards hyperinflation: The case of the Brazilian domestic currency substitute,” Pontifical Catholic University of Rio de Janeiro, April 1994.
A $1 billion first credit tranche arrangement was approved in August 1992 and the first tranche of an STF arrangement ($1 1/2 billion) was approved in July 1993.
The CBR finance rate peaked at 210 percent on October 15, 1993 and remained at that level until April 29, 1994. Since then it has been allowed to drop in stages following, albeit with a substantial lag, the fall in the interbank rate.