World Bank Approves Largest-Ever Loan to Russia for Structural Reforms
Structural adjustment is a term used to describe the policy changes implemented by the International Monetary Fund (IMF) and the World Bank (the Bretton Woods Institutions) in developing countries. These policy changes are conditions (Conditionalities) for getting new loans from the IMF or World Bank, or for obtaining lower interest rates on existing loans. Conditionalities are implemented to ensure that the money lent will be spent in accordance with the overall goals of the loan. The Structural Adjustment Programs (SAPs) are created with the goal of reducing the borrowing country's fiscal imbalances.The IMF has helped foster a severe depression in Russia. Russia in the 1990s has witnessed a peacetime economic contraction of unprecedented scale--with the number of Russians in poverty rising from 2 million to 60 million since the IMF came to post-Communist Russia. The IMF's "shock therapy"--sudden and intense structural adjustment--helping bring about this disaster. Given the monopoly structure of the economy, as well as the large amount of cash savings accumulated by Russian households, inflation soared 520 percent in the first three months. Millions of people saw their savings and pensions reduced tocrumbs.Washington, August 6, 1998 The World Bank today approved a new US$1.5 billion structural adjustment loan to the Russian Federation to support accelerated economic reforms needed to stimulate lasting growth, and to cushion the social impact of the transition to a market economy. The loan - which is part of the US$22.6 billion lending package from the International Monetary Fund, the World Bank, and the Japanese Government announced last month by the Russian Government - is the largest-ever made by the Bank in Europe and Central Asia. It is also the third in a series of Bank structural adjustment loans made to Russia since June, 1997. The two previous loans totaled US$600 million and US$800 million, respectively.
Agenda for Change
As Russia has completed its first phase of reforms in its transition to a market economy which has reduced inflation, lowered trade tariffs, and ended both price controls and centralized planning, the World Bank believes that the country's immediate priority must be to act in four key areas that will contribute directly to the resumption of growth and the maintenance of economic stability.
Reform of Infrastructure Monopolies
Improving efficiency, transparency, and competition in Russia's electricity, gas, oil, and railways monopolies should produce substantial benefits for the rest of the economy by stimulating lower costs, easing production bottlenecks, and promoting investment.
Private Sector Development
Dynamic private sector development will be key to the resumption of sustained growth in Russia. With price and trade liberalization substantially completed, promoting the private sector will mainly depend on a combination of reforms that would create a fertile business climate.
Fiscal Management
Fiscal reform has become an essential condition for restoring market confidence in Russia's ability to complete its transformation into a market economy. The World Bank believes that the Russian Government is keenly aware of its need for fiscal reform, in particular, sharply reducing government borrowing and improving the way it manages its finances.
Banking Sector Reform
Comprehensive reform of Russia's banking sector is a prerequisite for long-term economic stability and a robust financial system.
This third structural adjustment loan also complements the Bank's previous efforts to support Russia in creating a social protection system that meets the needs of a market economy, in particular a US$800 million Social Protection Adjustment Loan and a US$28.6 million Social Protection Implementation loan approved in June and October 1997, respectively.The loan is repayable in seven years, including a three-year grace period, at the standard LIBOR-based interest rate of US single currency loans. So far, the Bank's commitments to the Russian Federation total about US$11.4 billion for 41 projects.
Aissatou Nafi Maiga
