The curious episode with a report in the Financial Times on recommendations made by the International Monetary Fund to the Paris Club captures very accurately the current atmosphere in Russia's higher economic circles.
The report said that the IMF recommended the Paris Club of creditors not to hurry to write off the part of Russia's foreign debt inherited from the Soviet Union. That is to say, the Paris Club was not to repeat the London Club decision to write off 36.5 percent of Soviet debt.
The Financial Times report was immediately repeated by the Russian news agencies. The Russian press said it was linked to the prospect of President-elect Vladimir Putin being re-elected in 2004, which would coincide with the peak period for Russian payments to the Paris Club. With no write off, this would amount to $4.5 billion to the Paris Club alone.
First Deputy Prime Minister and likely Prime Minister Mikhail Kasyanov said that the Paris Club does not base its decisions on IMF recommendations, but on information creditors gather about the state of Russia's economy and finances.
Only after all these reports and statements, an ITAR-TASS correspondent asked the IMF press service to comment and was told that the IMF never gave any such recommendations to the Paris Club.
IMF experts regularly put together medium-term balance of payments forecasts and make them available both to the IMF directors and the Paris Club. These forecasts, as the fund's press service explained, are in no way political recommendations.
Most likely, the Financial Times journalist went in for a little subjective interpretation, spurred by the fact that the forecasts for Russia were unexpectedly favorable. This is at the same time as, following the standard economic criteria, the Paris Club writes off the debt of only the very poorest countries that really cannot pay. The only exceptions are purely political decisions, such as that to write off Poland's debt. But it's not easy to prove the necessity of these kinds of decisions.
The author of the false statements in the Financial Times used far from false information about the current state of the Russian economy. On the very day the report came out, Russia made a $121 million debt payment to the IMF. Over $1 billion in debt payments was made in the first quarter of this year.
Russia's financial authorities are confident in their ability to pay in full the $3.6 billion they owe the IMF this year, thus significantly bringing down their debt to the IMF, which stood at $15.23 billion at the beginning of the year. They also believe that Russia can meet the all its foreign debt payments and interest, which this year comes to $10.5 billion, or 40 percent of the federal budget.
These successes in meeting debt payments come at a time when Russia hasn't received any external financing for several months. But the economy, even though it's having to come up with several billion dollars from internal resources, does not seem to be under pressure.
The government is refraining from Central Bank borrowing over the first half of the year, even though the budget allows it.
The inflation rate is falling. In March, inflation growth was 0.6 percent, lower than in the U.S. during the same month. This is the best result for Russia since before the August 1998 financial crisis. Budget and company wage debts, which had amounted to 88 billion in October 1998, have fallen to 31 billion and debts to pensioners have been fully paid off.
Real incomes have been on the rise for half a year now, after falling for almost three years.
There are no economic miracles that was what seemed to be on Kasyanov's mind when he reacted to the Financial Times report. Such a reaction probably wasn't merited. Over the last year, Russia's economic situation has improved so much it seems hard to believe.
These are all signs that the market is finally beginning to work in Russia, but time is needed to verify this. It's not yet clear how the economy would react to a sudden sharp drop in oil prices. Russia's total debt is 10 times higher than its debt to the IMF and has to be reduced. That is why it would not be good for misunderstandings to get in the way between the Paris Club and Mikhail Kasyanov.