The Group of Seven leading industrialized democracies, beset by slow growth and big deficits, are reluctant to put up large amounts of new money for Russia and are turning instead to the International Monetary Fund to provide major new lending for Moscow, Western diplomats say.
But such a move would require the IMF to loosen its normally stringent loan requirements on such economic factors as Russia's inflation rate, money supply growth and government spending level.It is unclear whether the IMF is willing to change the lending terms it has applied in countries ranging from Argentina to Mexico to Poland.
Usually, as a condition for an IMF loan, a country must establish a credible program to deal with its economic problems. Russia has so far failed to present an acceptable plan to the IMF.
IMF officers worry that relaxing the loan conditions for Russia might bring requests for favors from other needy countries.
The IMF is also sensitive about appearing to do the bidding of the Group of Seven, which is composed of the United States, Japan, Germany, Britain, France, Italy and Canada, according to sources within the IMF.
"The industrial countries don't have much of their own to give, so they look to the IMF to be creative," said an IMF source. "The G-7 will need to provide the political will for action."
Foreign and finance ministers from the G-7 countries are scheduled to meet in mid-April to coordinate aid to Russia.
In a letter to G-7 members last week, the Clinton administration proposed that the IMF find ways to finance Russian imports, especially of capital goods needed to modernize industries.
Russia is allowed to draw between $3 billion and $4 billion from IMF reserves, the amount of Russia's own quota in the fund. The question facing G-7 members is whether to recommend formulas that would double or triple Russia's lending power through the IMF and under what conditions.
The loan program was not designed to assist former communist countries in making the difficult transition to market economies.
The G-7 countries have expressed a willingness to provide some aid to Russia despite their own economic difficulties. They expect to restructure Russia's current debt, which stands at over $75 billion, Western diplomats said. Such a move would simply recognize the current reality, which is that Russia has not been making debt payments.
"We would be putting the best face on a bad situation," said a Western diplomat.