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#7 - JRL 7010
From: ...@state.gov>
Subject: Financial Sector Reform in Russia: Recent Experience, Priorities, and Impact on Economic Growth and Stability
Date: Wed, 8 Jan 2003

IMF resident representatives Geoffrey Barnard and Paul Thomsen prepared their working paper "Financial Sector Reform in Russia: Recent Experience, Priorities, and Impact on Economic Growth and Stability" for a December 2002 Adam Smith Institute conference on the Russian Banking Sector. Their overview is easily accessible to the non-economist. The two IMF Moscow reps discuss ruble appreciation and the slowing pace of Russian economic growth in the context of Russia's economic challenges. These include a high dependence of primary commodities such as energy exports, a low proportion of small and medium-sized enterprises (15% in Russia vs. 50% in advanced transition economies), intrusiveness of local and regional government, banking system weaknesses, and the very large problem of lack of trust in institutions. The strategy of new management at the Central Bank of Russia focuses on strengthening private banks by introducing deposit insurance, bank supervision, international accounting standards (by 2004), strengthening creditor rights and establishing credit bureaus. The authors conclude that implementing these reforms will be essential for ending financial sector impediments to Russian growth and investment as well as ending Russia's over exposure to world oil price fluctuations. Political pressure on banks to extend loans would make a new banking crisis more likely. The working paper is available on the IMF website at http://www.imf.org/external/country/rus/rr/2002/pdf/120402.pdf

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