World Bank to loan $ 800 million to Russia

Dec 22, 1997 01:00 AM

World Bank will give Russia $ 800 million loans for budget and coal industry reforms as part of a $ 1.6 bn package to support its troubled economy.
The next $ 400 mm instalment will be released to Moscow in January or February, and the remaining funds will be disbursed in late 1998 and in early 1999.
"They can use it (the money) for anything they wish, for general budget support,'' said Michael Carter, the bank's country director for Russia.
The bank's board approved an $ 800 mm structural adjustment loan to help the government carry out economic reforms and an $ 800 mm loan for the coal sector.
Johannes Linn, the World Bank's vice-president for Europe and Central Asia, said that the two loans would help Moscow reduce payment arrears, reform electricity and other services, reduce the budget deficit, reform the banking sector and liberalise its trade regime.
Facing crippling wage arrears and higher costs for foreign and domestic borrowing, Russia has been looking at ways to close a yawning budget gap and bring its economic reform programme back on track.
The government has said the World Bank loans would remove the need to renew talks with Western banks on an emergency financing package, worth up to $ 2 bn, this year.
Linn said the $ 1.6 bn of World Bank loans were not "an emergency response'' to Russia's financial problems. But he said the release of $ 800 mm in the coming days should help stabilise Russia's financial markets, which have suffered a heavy blow from recent world financial turmoil.
The structural adjustment loan will support price reforms and restructuring in the electricity, gas, and railway sectors, and will be used to boost Russia's privatisation programme.
The World Bank said the loan would also help to resolve problems with insolvent banks, improve bank regulation and reform money markets and payment systems.
The $ 800 mm coal industry loan will be disbursed in three tranches, with $ 400 mm available immediately. A second, $ 200 mm instalment will be paid out in late 1998, and the third and final $ 200 mm will go to Russia in early 1999.
Russia has already received one coal loan from the World Bank to reform the industry. The bank wants Russia to close down unproductive mines and spin off coal company subsidiaries.
Bank officials said the new coal loan would be used to complete the liquidation of the national coal company, RosUgol, and to help privatise companies that account for 45 % of coal production.
To support reforms through next year, Carter said the World Bank would arrange a new structural adjustment loan for Russia, with disbursements beginning in mid to late 1998. He did not put a value on that next loan, but said it would be in the range of previous structural adjustment facilities for Moscow.
But Linn said future loans could be linked to Russia's progress in reforming its tax collection system. "Insufficient progress has been made,'' Linn said. But he added: "The government is now prepared to take the right steps.''

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