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IMF chides Russia over slowing reforms, economy
By Julie Tolkacheva

MOSCOW, Feb 13 (Reuters) - The International Monetary Fund chided Russia on Thursday for policies it said were slowing economic growth, and called on the government to speed up structural reforms.

The Fund also said Russia's central bank should concentrate more on cutting inflation. However, analysts blamed lax budget policy and not the central bank for high prices, and doubted that the government would rush to follow the IMF's advice.

"The large fiscal and external surpluses of recent years have placed Russia in a strong position to deal with a deterioration in the external environment," the IMF said in a statement after a two-week mission.

"A revival of structural reforms combined with a flexible but cautious approach to macroeconomic policies will be needed to foster sustained and broad-based growth," it added.

But most analysts said the government was more focused on parliamentary elections in December and presidential polls four months later than on proceeding faster with reforms.

"I wouldn't expect a speeding up of reforms right after the statement," said Yevgeny Gavrilenkov, chief economist at Troika Dialog investment bank. "It will happen after the elections."

Russia has not borrowed from the IMF since 1999.

"The role of the IMF has changed dramatically. The IMF is now a speaking partner. We have very competent people in the government... who know these issues themselves," said Peter Westin, a senior economist at Aton brokerage.


The prospect of elections appears to have prompted ministers to put the brakes on potentially unpopular structural reforms.

Russia under President Vladimir Putin has conducted a successful tax reform and plans further tax cuts. A reform of the telecoms sector is also being implemented successfully.

However, a key reform of national power utility UES (EESR.RTS), planned for two years, has so far borne little fruit. Investors are disgruntled while infrastructure decays.

The State Duma lower house of parliament debates electricity reform bills in a second reading on Friday and is likely to approve the legislation after months of wrangling. But the government has said nothing for a year of plans to reform the world's largest natural gas company, Gazprom (GAZPPE.RTS) (GAZP.MO.(GAZPq.L).

Alexei Zabotkine, chief economist and co-strategist at UFG, said that reforms had not slowed enough to generate concern.

"Rumours that reforms have slowed down are exaggerated," he said. "The Duma is likely to pass electricity reform bills, which are very liberal and radical...The approval of such a law means a lot in an election year."


The IMF also called on the central bank to give "higher priority to steadily reducing inflation."

"If oil prices remain strong, revenues from oil sector taxation will be higher than assumed in the 2003 budget and this windfall should be saved, followed by a tightening of underlying fiscal policy in 2004, to reduce pressures for real appreciation of the rouble and so support growth," the IMF said.

But analysts said the central bank had no power to regulate prices while the government was pushing electricity, gas, railway and communal services prices closer to international levels and raising pensions and wages to public employees.

"In small economies like Russia's, financial policies are more important for inflation than monetary policy," Gavrilenkov said.

Zabotkine said Russia should not be too zealous in fighting inflation, saying this made little sense while some prices were being pulled up to world levels, creating inflationary fears.

"In such a case, the effect of strengthening monetary policy is much smaller than the damage from a stronger rouble and lower supply of money in the economy," he said.

"The IMF is overdramatising the situation. It is using its standard phrases that there is room for improvement. But I do not think there is too much room of this sort."

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