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IMF tells Russia to tighten budget, save oil cash

MOSCOW, June 20 (Reuters) - The International Monetary Fund said on Friday it was worried that Russia's grip on its public finances is loosening, and urged the government to tighten its 2004 budget and save all its extra income from high oil prices.

"When fiscal policy is not as tight as it could be, it puts an additional burden on monetary policy and that puts an additional burden on the economy," IMF First Deputy Managing Director Anne Krueger told a news conference.

"The proposal to establish an oil stabilisation fund would help ensure stable growth in other sectors in times of low oil prices," said Krueger, in Moscow to meet government officials.

A Russian finance ministry official said on Friday the ministry was planning to set up such a fund, which could accumulate nearly $23 billion over the next three years.

The 2004 budget was conceived as a tough one, but the government has shown signs it wants to loosen the purse strings ahead of parliamentary polls this year. In this year's budget, spending has increased several hundred million dollars to finance a wage increase for public employees.

The IMF was also concerned by signs of slowing financial sector reform, where it singled out monopolies and reform of the bureaucracy as weak spots, Krueger said.

"Excessive regulation and corruption exert a far greater drag on private sector development than taxes," she said.

Russia's economy is growing at a pace nearly unseen in the rest of the world as the global economy slows. The statistics committee said on Friday first quarter gross domestic product had grown 6.8 percent.

Economists say growth could hit 4.5-6.0 percent for the year -- largely because of high prices for oil, Russia's key export, and other key commodities.

President Vladimir Putin said on Friday he believed his goal of doubling Russia's GDP over the next decade was attainable. Krueger also struck an optimistic note.

"I think there is so much scope for improved economic performance here that sufficient moves don't have to be perfect moves ... for the president's target to be achievable," she said.

Krueger praised the central bank for its recent success in forcing down price growth, which she cited as a key focus for the Russian government. She said monetary policymakers should get more help from the country's financial managers.

While the rouble has been rising, supported by oil revenues, the government is having a tough time keeping inflation in check with oil revenues pouring in after oil prices hung around $30 per barrel in the first quarter, ahead of the U.S. invasion of Iraq.

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