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IMF chief sees leading role for Russia

13.11.2011 22:12

Monday saw the beginning of Lagarde's two-day visit to Moscow, where she met Russian President Dmitry Medvedev later that day to discuss the results of the G-20 summit in Cannes. Beginning her speech at the Finance Ministry State University, she quoted renowned Russian writer Anton Chekhov as saying that "human relations have become so incomprehensibly complex that, when you think about it, it becomes terrifying and your heart stands still." Lagarde then focused on the current situation in the world economy, describing Europe as the most problematic zone. She attributed the economic crisis in the region to political indecision and the absence of trust between EU countries. She said that more attention should be paid to major players, including Russia, which is on the top-ten list of the IMF's most influential countries and which may give a helping hand to its partners:

"Russia went through many crises and it survived many crises. And Russia is a survivor in many ways from an economic point of view, as well as from the general point of view, anyway. And it is clear that, in the recent crisis, it has moved ahead to fortify its defenses. A lot has been done from an exchange rate policy point of view. The monetary policy in particular has been very subtle, very smart, very gradual, and it is clearly allowing for that degree of flexibility for the economy to adjust. In the same way, I think that the inflation anchor that was adopted a few years back and that has been suspended should clearly be reinstituted as the crisis permits and as the crisis fades in many ways."

Echoing Lagarde on Monday was Russian Foreign Minister Sergei Lavrov, who said that Russia and other BRICS countries are "ready to take part in joint efforts, including the provision of credits, under those rules and channels that exist in the International Monetary Fund."

Lagarde, for her part, piled praise on the current state of affairs in Russia, adding that she remains upbeat on the future of the Russian economy. She advised Russia against only concentrating on interaction with the IMF and the G-20, saying that Russia "should not forget about its own prosperity and preserve a balance between its revenues, including those from oil".

"Some countries have massive resources. Russia, for instance, has incredible raw material resources, energy resources and can actually develop significant reserves. It has had reserves. It has used up some of these reserves. And it is rebuilding its reserves, going forward. And certainly, from the policy point of view, we recommend that that should take place. Particularly those counties that are in a bad situation must be very attentive to the non-energy revenue deficit. But what if the storm was to come? In that case Russia has a number of policy options. It could allow the exchange rate to adjust, deploying its reserves to cushion the transition. It could provide liquidity support to banks, as needed. It could let these automatic stabilizers that I was talking about uprate, allowing unemployment benefits to rise and the tax burden fall in response to weaker growth, particularly in the area of potential tax exemptions."

Separately, Lagarde touted the creation of an international financial center in Moscow, which she said is a "good purpose":

"I know this is a very legitimate aspiration of some of your leaders to have solid, strong financial markets in Moscow. This is good enough in itself. And it is particularly good because when you want to do that you need to actually put in place the layers of legislations - the rules, the authorities that will actually make sure that the financial markets respond to the obligation of accountability and responsibility and compliance with rules and laws simply because they are entrusted with a special mission, which is to move people's money around. And they have to do so in the safest and most secure way possible."

Wrapping up her lecture, Lagarde gave her thoughts on a variety of issues, including Russia's accession to the World Trade Organization. According to her, Russia's joining the WTO will mean a political and economic victory for Moscow.

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