Rescue of Russia's Battered Ruble May Be a Job for IMF

Moscow's ubiquitous currency-exchange bureaus were fairly quiet yesterday, with no long lines or obvious signs of panic. But it was not exactly business as usual: A quick survey of bureaus lining busy Belorussian Square showed that many had run out of dollars by noon, and customers for the beleaguered ruble were few and far between.

While officials from the prime minister to the head of the Central Bank assured Russians that there would be no devaluation of the national currency, wary private citizens were taking what cautious steps they could to protect themselves.

In contrast to the relative calm on the streets, tension was running high in government and financial circles, as officials sought a way out of Russia's growing crisis, touched off by a collapsing stock market, which resulted in a threefold rise in interest rates Wednesday.

"Russia's financial market will not collapse. The Central Bank and the Finance Ministry have sufficient reserves to control the situation," said President Boris Yeltsin after an emergency meeting with Prime Minister Sergei Kiriyenko and other members of the government's economic team yesterday morning. Mr. Yeltsin also planned to speak by telephone with President Clinton and German Chancellor Helmut Kohl.

But although markets rebounded somewhat from Wednesday's steep fall of more than 10 percent, the president's words were unlikely to soothe jittery investors, who have been deserting the market in droves over the past few weeks. "Even bitter critics of the current regime had no idea how bad the situation really was," says Boris Kagarlitsky, an analyst at the Academy of Science's Institute for Comparative Politics in Moscow.

Over the past month, Russia's economy has suffered a series of body blows, with the stock market sliding 40 percent since the beginning of May, angry coal miners in Siberia staging a 10-day railroad blockage that cost the government more than $75 million, and the collapse of a major privatization auction. No bidders were willing to put up the necessary $2.1 billion for Rosneft, a state-owned oil giant and the last plum in the government's privatization package.

Finally Wednesday, Moscow was forced to defend its shaky currency by raising yields on treasury bills from 50 to 80 percent and adjusting the benchmark refinancing rate from 50 to 150 percent. The government is spending $500 million a day to shore up the ruble, against reserves of a little more than $14 billion. Without a Gargantuan rescue effort by the International Monetary Fund, Russia's economy could be headed for a crash.

The effects of a downslide in the Russian ruble would be hard to predict, but, according to some analysts, they could rival those of the Indonesian crisis that sent shockwaves through world markets last autumn.

But IMF chairman Michel Camdessus declared yesterday that no bailout plan was in the works. "We have not started discussing anything of this kind and I have no reason to think that such a need exists," Mr. Camdessus told Reuters during a visit to Kazakstan. The IMF may soon release the next installment of a $9.2 billion credit, but the $670 million that would then become available will not go far. Analysts say as much as $10 billion could be needed to put Russia back on solid ground.

"The new liberals thought that if they defended financial stability they would have economic growth," says Mr. Kagarlitsky. "But in a country with low or no economic growth, this philosophy gave just the opposite results."

The push to stabilize the ruble and conquer inflation, heralded as the major achievement of the last government, led to enormous internal debt, which Kagarlitsky calls "canned inflation." Since the government could not print money to cover spending, it borrowed. Now, by some estimates, government debt has reached almost 50 percent of gross domestic product.

All of this is quite a challenge for a government that has been in place for a little over one month. Mr. Kiriyenko and his team of young reformers are reaping the fruits of a policy put in place by former Prime Minister Viktor Chernomyrdin, who was summarily dismissed by Yeltsin March 23. The political instability has contributed to the economic crisis, and opposition members in parliament are promising a confrontation in the fall.

But for now, the task is to last through the day.

"Kiriyenko will artificially save the ruble today," says Kagarlitsky, "but in the end he will have to plan an orderly retreat. He will finally have to devalue the ruble, but he can hope to do it in an organized manner."