The Role of International Financial Institutions During the Transition in Russia

This chapter aims to provide an early assessment of the role played by international financial institutions during the transition in Russia. ¹ The subject is multidimensional, and this paper attempts to identify some of the key issues that emerged during the first ten years of Russia’s gradual transformation into a market economy. Because the International Monetary Fund (IMF) provided about three-quarters of total multilateral lending during the 1990s, our primary focus will inevitably be on this organization’s programs and operations. ² We begin by briefly identifying in the next section the primary sources of external financing to the Russian government during the 1990s and highlighting the chief characteristics of each. Having shown that multilateral lending played a central role in the provision of resources to the government, we then turn our attention to the issue of what were the key policy objectives pursued and the instruments used as part of the multilaterals’ aid effort. We argue that the Fund’s approach, in particular, fell well short of achieving the goals established at the outset of the transition. We then look for some explanatory factors, focusing attention in particular on the gap between theoretical insights into the ingredients of sound approaches to economic development on the one hand, and the practice of the development agencies on the other; the role of geopolitical considerations in multilateral lending; issues of IMF jurisdiction; and the limited administrative capacities of the government during the initial stages of the transition. Given the central role played by the IMF during Russia’s transition and the continued importance of the organization in assisting other countries in crisis, the paper’s last section provides some initial thoughts on IMF reform.