NOVO OGARYOVO, Russia (AFP) - IMF Director General Rodrigo Rato urged Russian President Vladimir Putin to limit state intervention in the economy and keep a close eye on inflation in order to meet his goal of doubling output by 2010.
Rato complimented Putin -- who for his part vowed to make early payments on International Monetary Fund debts -- for his command of the economy but stressed that with petro-dollars pouring into state coffers at a steady clip, the economy threatened to overheat.
"We certainly commend the strong action of the monetary authorities and central bank to strengthen the banking system," Rato told Putin on his first official visit to Russia.
"We see today the Russian economy on a very strong path to growth, and we believe it is a good moment to take advantage of this growth path to push forward the reforms which the president has outlined on many occasions," Rato said as the two men met at the suburban Moscow presidential retreat.
Russia's reserves now stand at a post-Soviet high of 113 billion dollars and Moscow is scrambling to determine how best to use all the cash.
The massive inflow prompted the Fitch agency to upgrade Russia's currency ratings Thursday to investment grade, a move that reduces risk premiums in a positive signal to Russia's foreign investors.
But Rato said Russia still needed "a clear and transparent" environment for investors to feel fully safe.
The Russian government is now under pressure from voters to spend the extra funds immediately on the struggling social sector but the policy threatens to further spike inflation and derail economic growth.
Rato instead complimented Russia for setting up a separate stabilization fund which absorbs some of the extra cash flow and for further deciding to make early foreign debt payment -- some of which goes back to the Soviet era.
But he also said budgetary policy in Russia remained lax and broader structural reforms were not yet all in place to sustain long-term growth.
"We see very clearly that the efforts by the central bank to reduce inflation expectations have to be strengthened with a strict budget policy, that is responding to the needs of Russian society and the Russian people and also keeps expenditure controlled and efficient," Rato said.
Rato concluded that "what the Russian economy needs is less state intervention in the economy."
Although Moscow no longer relies on Western help, Russia's economy survived on IMF assistance throughout the 1990s. Russia borrowed 22 billion dollars between 1992, its first year of post-Soviet existence when the economy was in shambles, and 1999 -- the year that Putin was named prime minister.
But Moscow was forced to devalue its currency during the 1998 economic collapse, which IMF help was unable to avert as Russia became swept up in a financial crisis raging through Asia the previous summer.
With the resulting cheap ruble helping exports and local producers, and timely growth in global prices on Russia's oil and gas, the economy has grown steadily since 1999.
Putin thanked the IMF for helping Russia in a time of crisis, and vowed to make early payments in the coming future to raise Moscow's standing within the Fund.
"We are able to make early payments on debt both before the IMF and the Paris Club" of creditor nations, Putin said.
"As regards the Paris Club, our action could go even further than the debt repayment we can make to the Fund. We are prepared to discuss this" with the Club, to which Russia now owes about 45 billion dollars.
11/18/2004 - 18:07 GMT - AFP