Thursday's presidential statement concerning pre-schedule repayment of the Central Bank debt to the IMF had an explosive effect.

Hardly anyone is in a hurry to pay back debts before it is absolutely necessary. On top of that, Finance Minister Kudrin assured the State Duma just a few days ago that there was no early debt repayment in the cards. Moreover, the government had planned for new loans next year, which would exceed existing IMF credits several times over.

The so-called stabilizing credit the IMF issued to Russia several days before the August 18, 1998 crash is one of the most scandalous affairs in domestic economic history. Following in the wake of the August devaluation were accusations to the effect that the Russian authorities had failed to use the IMF credit for "its stated purpose."

Russia's 1999 attempts to establish a new line of credit with the IMF were bogged down by demands to first investigate what had happened to the "stolen" $4.8 billion credit. Then U.S. Treasury Secretary, Robert Rubin, insisted that prospective Russia-IMF programs should take into account reports about offshore machinations with Central Bank resources. Congress Republicans took an even harsher position, with Republican Majority Leader Dick Armey and Economics Committee Vice-President Jim Saxon declaring that the United States must use every opportunity in order to prevent appropriation of new IMF credits unless the Congress was given a report describing what had happened to the last $4.8-billion credit issued to Russia in August 1998.

The Congressmen wrote a letter to the Secretary of the Treasury, claiming that it was quite possible that the $4.8 billion had been lost in illegal operations. A huge sum of U.S. taxpayers' money was likely spent on the prosperity of Russian oligarchs.

The "stabilizing" credit was negotiated by special representative Anatoly Chubais, Prime Minister Sergei Kiriyenko, Central Bank Head Sergei Dubinin, and Finance Minister Mikhail Zadornov.

The idea of an "ahead-of-schedule' repayment of foreign debts had undoubtedly come from Presidential Economic Adviser Andrei Illarionov. Illarionov believes that it makes good economic sense to "squeeze" excessive hard currency that the economy cannot use for investments out of the country. This helps to lessen dollar pressure on the ruble, reduce inflation, preserve competitiveness of domestic production, and secure economic growth. On the other side of the coin, Andrei Illarionov believes the Central Bank's excessive accumulation of gold and currency reserves (to be used to repay the IMF debt) is bad economic policy.

Andrei Illarionov's ideas are running into resistance within the government and the Central Bank, but it is quite obvious that Russia's economic course is turning "Illarionov-ward." Foreign debt rescheduling, budget reserves, and currency liberalization are just some examples of the influence the economic adviser's ideas have in the upper eschelons of power. Today's precedent setting idea regarding early foreign debt repayment may prove to be no less of a significant economic event than the idea of the infamous stabilizing fund.

In explaining to Strana.Ru what the presidential decision is all about, Andrei Illarionov pointed to the fact that the 1998 $4.8-billion credit had been divided between the Finance Ministry ($1 billion) and the Central Bank ($3.8 billion). The Central Bank had paid out $1 billion and would now pay the remaining $2.7 billion ahead of schedule, saving for the Treasury $70-80 million in interest, a sum which would have accrued had the original timetable been observed.

The present decision is likely to bring some longer-term dividends, clearing the way for new IMF loans, which will be necessary to repay the scandalous $4.8-billion credit Russia received in 1998 as soon as possible. In future, loans worth several billion dollars each and carrying a concessionary interest rate (not higher than 5% per annum) may come in handy, when it is needed to repay more expensive credits (and securities) due in 2003. Besides, in the eyes of the IMF, reputation for super-conscientious borrowing may be an argument in favor of starting talks with the Paris Club.

One way or the other, the early repayment of credits creates a precedent, which more likely than not will have positive consequences for the Russian economy.

As far as the Central Bank is concerned, with its reserves worth almost $39 billion, paying $2.7 billion to the IMF does not seem beyond its strength and will only slightly relieve its coffers. It is only for the Finance Ministry that the political decision to prepay the "cheap" debt (at 4.6-4.8% annual interest) may prove not quite as convenient as calling into question the idea of new loans. It will be hard to insist on attracting new loans (over $2 billion worth of Eurobonds at 9-10% annual interest). As a result, the government will have to contemplate cutting down current expenses, and take to an elementary saving, or reduction of interest-free expenditures, something that Andrei Illarionov used to urge as well.

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