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Russia, World Bank could part ways http://www.russiajournal.com/weekly/article.shtml?ad=5585 By CAIN BURDEAU / The Russia Journal As Russia’s economy grows in leaps and bounds, a growing number of Russian politicians and officials believe the days of dependence on international borrowing are drawing to a close. On Wednesday, at a roundtable meeting between Russian officials and the World Bank, a chief lender to Russia, laid out the basic question: Does the country need the World Bank anymore? This review of World Bank loans by the Finance Ministry comes as the Cabinet prepares to decide in February whether to ask for a new batch of loans for 2002-04. "Some doubts have emerged about whether we need the bank," said Georgy Glazkov, the Finance Ministry’s negotiator with international financial institutions. The multimillion-dollar loans have been used to bolster sections of the economy and to improve Russia’s ability to compete on the world markets. Russia has been borrowing less and less from the bank. In 1997, it borrowed the most, $3.3 billion, but in 1999 and 2000 Russia borrowed $30 million each year. While the Russian economy may be doing well, the country still needs lots of investments to fuel further growth, the World Bank argues. Julian Schweitzer, the Bank’s Russia director, said: "I think most observers will agree that Russia will need very high levels of growth to meet the goals that have been set. … But I doubt if Russia can sustain high levels of sustained growth without high levels of sustained financing, both for the economy and for the social fabric." A main point of contention appears to be how much of the loans go to paying consultants, and in particular foreign consultants. Under the bank’s projects, consultants are brought in to give advice on the most up-to-date techniques for everything from health-care financing strategies to sustainable logging practices. Yelena Pukhova, head of the State Duma Commission on State Debts and Foreign Assets, said, "Deputies have voiced a lot of concern" over the salaries given to foreign consultants. She added that the loans "should be better adapted to the Russian economy." "There’s this idea that Russia doesn’t need to borrow, Russia’s doesn’t need help," said Christof Ruehl, the World Bank’s chief economist in Russia. "And there’s this perception that foreigners are siphoning off money from Russian taxpayers." But the World Bank insists that Russia still needs technical assistance to move forward with economic reforms and to combat social ills, such as an explosion of AIDS. Ruehl said, "We want to provide better technical assistance and work with the regions where reforms are being implemented." Given Russia’s recent macroeconomic performance, the bank sees no need for Russia to borrow for budgetary or balance-of-payments purposes. Instead, the bank is offering to pay for projects that tackle social and bureaucratic problems — and that would involve lots of consultants. Despite the doubts, many Russian officials seem to see the benefits of foreign help. Nadezhda Lebedeva, a top health official working on health reforms, said at the roundtable meeting, "We need to rely heavily on international knowledge." She estimated that it would take up to 20 years to upgrade the country’s health system without foreign assistance. By contrast, with a World Bank loan health officials believe their aims can be reached in a fifth of the time. Nonetheless, some Russian officials believe the days of World Bank loans are numbered. Glazkov believes that after 2004 the loans may not be needed. "I think 2004 will be the beginning of the end." He added, "Theoretically speaking, once Russia passes the phases of a transition economy, it would be ineligible" for loans from the World Bank. Ruehl disagreed, saying, "Russia is still a far cry from per-capita-income levels which would make it ineligible for World Bank funding." The emergence of doubts over the necessity of World Bank alarms some economists. "I’m really concerned that the public opinion in this country is against borrowing for consultants. One of the reasons is that people don’t see tangible results immediately, but you cannot expect to see them immediately," said Alexei Novikov, general director of EA-Ratings. He is working as a consultant on a World Bank loan to make governmental financing in the regions more transparent and effective. Novikov believes anti-Western feelings aren’t fueling unease over the loans, but rather backward thinking on the part of some politicians. "It's not about dependency on the West, but just under-valuation of debt as an economic instrument" that is behind some politicians’ reluctance to take out loans, he said. "Debt should be used as an economic instrument to finance capital needs," he said. "I remember a few years ago people were excited about the World Bank projects, but people seem disappointed now," he said. He added: "It wouldn’t be wise at all to stop World Bank loans. And if it happens, I think it would limit the intellectual environment in Russia. … If Russia stops borrowing from the World Bank, then at least the consulting community would disappear." ___________________________________ Copyright © 2001 The Russia Journal http://www.russiajournal.com __________________________________________________ Do You Yahoo!? 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