08/17/1998 16:44:31 IMF policies in spotlight as Russia devalues

By Janet Guttsman WASHINGTON, Aug 17 (Reuters) - A Russian policy U-turn, involving the devaluation of the ruble and a moratorium on some debt, raises doubts about international efforts to contain the financial crisis there, analysts said on Monday. The International Monetary Fund, which threw Russia a $23 billion lifeline just four weeks ago, said cautiously that its experts would analyze the new policies, and the U.S. Treasury and White House urged the Russians to work with the IMF. A statement from fund Managing Director Michel Camdessus said Russia should hold to the policies which have formed the backbone of the IMF rescue efforts -- stepping up efforts to rake in taxes and talking to creditors. But while experts recognized that Russia, hit by contagion from Asia and by a crisis of confidence at home, was to some extent being held hostage to events outside its control, some also questioned whether IMF recipes were appropriate. "The IMF is, in this case, unfortunately part of the problem," said Allen Sinai, senior global economist at Primark Decision Economics. "The IMF is calling for fiscal austerity and tight monetary policy. That's the wrong prescription for a economy which is in recession, or perhaps depression." Paul Dickson, emerging market strategist at Lehman Brothers, said the IMF needed to do more to address the concerns of financial markets -- and to show that it was aware of these concerns. "The market is bigger than the IMF," he said. "Issues like this bring together people in markets who have a very, very short-term framework with bureaucrats who have a very, very long-term framework." IMF experts had long argued that there was no need to devalue the ruble, which had traded within a broad corridor with the dollar until pressure began to mount last month, and they were clearly surprised by the speed with which the latest rescue deal unraveled. The deal comprised $11.2 billion of new IMF money and loans from the World Bank and Japan. Russia received $4.8 billion from the IMF up front and is due to receive an additional $4.2 billion after September 15, if reforms meet IMF guidelines. A monetary source said these targets would have to be reviewed in light of Russia's new economic circumstances. Clifford Gaddy, economist at the Brookings Institution in Washington, said a ruble devaluation had been inevitable, given the market's dismal reaction to the July IMF package. "You have got to let the market go ahead and play itself out with respect to the ruble," he said, noting that the U.S. administration had "arm-twisted" the IMF into the bailout. The Russian policy switch came after days of denials from government officials that they were prepared to contemplate a ruble devaluation. It is bound to boost inflationary pressures at home and could lead to popular discontent with a government already under fire for failing to pay wages on time. "A devaluation for them is a real defeat, given that bringing inflation down is perhaps the principal achievement of the Yeltsin government," said Morris Goldstein, of Washington's Institute for International Economics. Goldstein noted that the Russians had compounded their economic problems after the State Duma lower house of parliament reacted unenthusiastically to President Boris Yeltsin's request for legislation to improve tax collection. Yeltsin brought in some measures by decree, but it was already too late to convince markets. "It's a confidence game, and they did not win," he said.