IMF Backs Embattled Russia’s Refusal to Devalue the Ruble

Russian leaders are smart to try to avoid a devaluation of the ruble, which would only deepen the country’s economic crisis, a top International Monetary Fund official said Sunday.

Martin Gilman, head of the agency’s Moscow office, praised Russian leaders for their efforts to dig their country out of its economic troubles and said the fund would make a decision on a bailout loan shortly.

Russia wants at least $10 billion from the IMF to build its central bank reserves. The funds are needed to back up government bonds and prevent a run on the ruble.

Russia’s stock market has lost about half its value since the beginning of the year, and the central bank has been using hard-currency reserves to hold the ruble steady.

Gilman said Russia must take control of its budget before considering devaluing the ruble. Devaluation “will not resolve the budget problem but only make it worse,” he said, according to the Interfax news agency.

Investors have been fleeing Russia’s markets for weeks, worried that the central bank will run out of reserves to support the ruble. The shaky currency is one of several problems behind Russia’s economic crisis, which caused the stock market’s steep drop and forced interest rates up to 80%.

Until now, Russia’s relatively low inflation and the ruble’s stability have been considered among President Boris Yeltsin’s most important successes. Devaluation would increase consumer prices, which the Kremlin fears could lead to social unrest. A wave of miners strikes last month intensified that anxiety.

Some analysts have argued that a devaluation is inevitable and that the government is trying too hard to prevent it.

But the IMF’s Gilman told Interfax that the experience of other countries has shown that devaluation causes more problems than it cures.

The IMF has insisted on a strict austerity regime, insisting among other things that Russia improve tax collection, which takes in only a fraction of what is owed.