Ruble's Gains Raise Talk Of Russian Dedollarization

But analysts warn against viewing ruble's rise as turning point

AFTER months of record lows, Russia's beleaguered currency has steadily gained points against the United States dollar on a wave of government assurances promising economic stability and well-being.

The ruble traded at a two-month high of 4,900 to the dollar June 6 on Moscow's Interbank Currency Exchange (MICEX), a 4.5 percent increase over its all-time low of 5,130 set on April 29.

"The national currency, the ruble, is rising in earnest," acting Central Bank head Tatyana Paramonova gushed on the Itogi TV program. A proponent of "dedollarization" of the economy, she said "sooner or later the ruble will become the main currency of Russia."

The US dollar is widely used in daily transactions in Russia.

The ruble's recent rise took most traders by surprise. It forced the Central Bank on June 5 to buy $60 million of US dollars, thereby supplying rubles to the exchange market, slowing the ruble's advance. "In January, we had to fight to save the ruble, while now we have to fight to save the dollar," Deputy Prime Minister Anatoly Chubais said June 5, reports the Interfax news agency. The Bank's hard currency reserves have risen 9 percent since January, he added.

Charles Blitzer, head of the World Bank's Moscow office, said the Central Bank's dollar purchase forestalled a more dramatic ruble rise. But high inflation makes investors skeptical about the ruble's future against the dollar.

"That said, it is a good sign that demand for the currency is up. But it's not fair to say that this is a marked turning point," Mr. Blitzer told the Monitor. "It is just one positive sign."

Russia's Finance Minister, Vladimir Panskov, said he expects the ruble to continue to gain points against the dollar at least until the end of June. "Given a continued stabilization of the economy, this progress will become permanent," he told the ITAR-Tass news agency.

But given persistently high inflation rates, traders said the rise of the ruble probably left it overvalued, while the US currency was fetching much less than its actual worth.

Exporters are wary of the ruble rising further, as inflation of 7.9 percent in May - down from 17.8 percent in January - is still too high to let the currency appreciate against the dollar.

"Monetary policy has been pretty tight so far this year, and the budgetary outturn was quite favorable with spending lower than expected. The interesting point is why the exchange rate has risen at a time when inflation has not been falling," commented one Western diplomat based in Moscow.

The government has kept its promises to follow a tight monetary policy and severely limit printing excess money to cover the deficit.

The government forecasts that the monthly rate of inflation will fall to 1 percent or 2 percent by the end of the year.

But some say that officials have exaggerated the progress of economic reforms - which has increased demand for the ruble - to convince the International Monetary Fund to dole out new installments of a $6.4 billion standby loan.

An IMF mission arrived in Moscow June 5 to see whether the Kremlin had met the preconditions necessary to receive the next tranche of the loan, which was approved in March.

Igor Doronin, a MICEX spokesman, said the Central Bank would not artificially engineer the ruble's rise for the sake of the IMF.

"There are still signs that business activity [here] is weak. By strengthening the ruble, the Central Bank puts itself in danger of stimulating imports, which will negatively affect the trade balance," Mr. Doronin said.

The ruble lost 21.5 percent of its spending power against the dollar during October's notorious "Black Tuesday," sparking fears of financial chaos by embarrassing the government and putting its pro-reform platform in danger.

Russian President Boris Yeltsin said then that he regarded the ruble's nose dive as a deliberate act of sabotage, and Central Bank Chairman Viktor Gerashchenko was sacked in the ensuing political fallout.

The popular tabloid-style daily Moskovsky Komsomolets on June 6 offered its own conspiracy theory for the dollar's decline. The Central Bank brought down the greenback in a ploy to oust dollar savings from under mattresses and jam jars, it said. Frightened Russians would then rush to convert their savings into rubles - and deposit them in the state-run Savings Bank.