Fellow pen-l'rs,
This is latest from Fred Weir and Reuters on the situation in Russia.
The ruble was devalued, promising to impoverish the already pauperized
workers and to fuel their wrath in the coming months. The roots of this
are already evident in the increasingly militant and politically
motivated demands of the working class. At the same time the political
instability in the country is laid bare, as many top officials and
bankers, in hopes of escaping responsibility and the guillotine, have
resigned from their posts.
In solidarity,
Greg.
*****
#1
From: Fred Weir in Moscow
Date: Sun, 16 Aug 1998
For the Hindustan Times
MOSCOW (HT Aug 16) -- President Boris Yeltsin has
interrupted his vacation plans and other senior Russian officials
are returning to Moscow for a last-ditch round of meetings aimed
at pulling the country out of its economic tailspin.
Mr. Yeltsin has been on holiday in Russia's western lake
district for almost a month, enjoying a little hiking and fishing
while insisting publicly that there is no crisis in the country.
"There is no need for me to return to Moscow," Mr. Yeltsin
said Friday in Novgorod, an ancient Russian city where he has
been resting. "Moreover, when the president rushes to the
Kremlin, everybody thinks that something is wrong."
But the next day Mr. Yeltsin abruptly decided to return to
his summer home near Moscow, just an hour's drive from the
Kremlin. Russia's top financial negotiator, Anatoly Chubais, also
interrupted his vacation to return to the capital Sunday,
according to the official ITAR-Tass agency.
Moscow newspapers report a crucial round of meetings is due
this week, as the Russian government and its international
creditors try to stem a spiralling financial crisis that
threatens national bankruptcy and political collapse.
The Moscow stock exchange has virtually melted down, losing
over 70 per cent of its value in less than six months -- perhaps the
most dramatic stock market crash in history.
Despite huge loan injections from the International Monetary
Fund and other Western lending agencies, Russia's hard currency
reserves are evaporating as the Central Bank struggles to defend
the battered rouble and service the country's enormous debts.
Many experts now believe a devaluation of the rouble is
imminent. Last week the international financier, George Soros,
called for a 15 to 20 per cent devaluation of Russia's currency
to save the Russian government from sliding into complete
bankruptcy.
For the first time since the crisis began, panic has begun
to stike the population. Over the weekend huge crowds of
Muscovites gathered at banking machines and currency exchange
posts hoping to change their roubles for more stable dollars or
marks.
But most banks were already refusing to sell dollars, and
those that did charged as much as 30 per cent premium over the
official exchange rate.
"I know I'm going to wake up one morning soon and find that
my savings are worthless again," said Marina Malukina, a 57-year
old pensioner, who was hoping to convert her savings of 3,000
roubles (about $500) into dollars.
"I lost everything I had in the big inflation of 1992, and I
can see that it's all going to happen again."
*****
#2
From: Fred Weir in Moscow
Date: Mon, 17 Aug 1998 13:06:35 (MSK)
For the Hindustan Times
MOSCOW (HT Aug 17) -- Out of options, the Russian government
bowed to the inevitable Monday and sharply devalued the rouble.
The move is expected to ease the state's debt crisis, but will
translate into massive price increases for the average citizen.
The Central Bank announced Monday morning that it will no
longer defend the old rate of 6.3 roubles to the U.S. dollar and
will allow the battered currency to rise to a new ceiling of 9.5
to the dollar -- an effective devaluation of over 50 per cent.
The rouble immediately began plunging on Moscow's currency
exchange, money traders in the streets began frantically changing
their rates and interest on government bonds rocketed to over 300
per cent.
"If the economy was functioning properly, devaluation might
be a useful tool for cooling things off," says Sergei Tarasenko,
an analyst at the Independent Foundation for Studies in Policy.
"But Russia's economy is malfunctioning in basic ways, and
devaluation will only lead to inflation, chaos and mass
impoverishment."
The Russian government has repeatedly pledged to hold the
rouble steady and as recently as last Friday President Boris
Yeltsin promised there would be no devaluation.
Mr. Yeltsin made an unscheduled return from his holidays at
the weekend, presumably to be near the Kremlin when the
devaluation crisis hit. Other top officials, including the
government's chief debt negotiator Anatoly Chubais, have also cut
short their vacations to return to the capital.
The devaluation is expected to bring on rapid price
inflation in Russia's import-dependent consumer economy. In
Moscow up to 80 per cent of the food and everyday items on sale
are imported -- which means their prices will soar as the
purchasing power of the rouble drops.
Many analysts expect this new blow to popular living
standards could lead to political crisis and social unrest.
Strikes and protest have been multiplying in recent months
throughout Russia's economically-blighted hinterland, and trade
union leaders have promised a "hot autumn" is on the way.
"There is nothing good in the short-term perspective," says
Mr. Tarasenko. "People are going to pull their money out of the
banks, there will be no more trust in financial institutions and
the whole economy could start to unravel.
"We can only expect more political conflict, because
Yeltsin, the government and the parliament will try to fix blame
on each other for this disaster."
*****
#3
Russia lets rouble drop, locals hunt dollars
By Adam Tanner
MOSCOW, Aug 17 (Reuters) - Russia effectively devalued the rouble on
Monday in
an abrupt reversal of policy intended to restore confidence in its
rickety
financial system.
But drastic measures announced by the government and central bank,
including
halting some foreign debt repayments for 90 days, sparked queues outside
some
foreign exchange booths as Russians sought to change roubles into
dollars.
International financial markets initially reeled on the news, with the
dollar
hitting a five-week high against the German mark, shares falling and
Russian
Eurobond prices sliding in London. The mark later recovered and shares
in
Europe and the United States wiped out their losses.
The shock moves, which Prime Minister Sergei Kiriyenko denied amounted
to a
devaluation or a debt default, followed a plunge in Russian shares in
recent
weeks on fears of devaluation after central bank reserves fell sharply.
"The measures are tough and fairly radical," Kiriyenko said. "They are
tough
but adequate and unavoidable."
The measures are also politically risky. Although the Kremlin said they
have
the blessing of President Boris Yeltsin, they threaten the two main
economic
achievements of Yeltsin's presidency: a stable rouble and low inflation.
In a sign of lower confidence in the economy, the Fitch IBCA rating
agency
reduced its Russia country rating. Russian shares, which fell to
two-year lows
last week on devaluation fears, closed down nearly five percent.
A government and central bank statement said Russia would free the
previously
tightly-controlled value of the rouble to between 6.0 and 9.5 per dollar
until
the end of the year.
The official rate of the rouble did not reflect a huge devaluation -- it
moved
from 6.43 per dollar from 6.31 on Friday.
But most of Moscow's banks and exchange points immediately increased
their
price for dollars to as high as 9.5 roubles, about 30 percent higher
than last
week, although others offered rates of 7.5 to 8 roubles per dollar.
There was no obvious panic but some people in Moscow reacted by queuing
in
search of dollars -- traditionally a safe haven.
Some shops, especially those selling big-ticket imported items such as
furniture and televisions, closed for the day. The owners said they
simply did
not know where to set prices.
The International Monetary Fund, which had hoped to calm Russian markets
by
helping put together a $22.6 billion loan package last month, dispatched
its
top Russia official John Odling-Smee to Moscow, where he met top Russian
debt
negotiator Anatoly Chubais.
"International monetary organisations, naturally, were not enthusiastic
about
our proposal to restructure the state debt... but they showed
understanding of
the situation," RIA news agency quoted Chubais as saying after the
meeting.
In recent days the rouble had fallen outside its official trading band
as
financial institutions and banks sought to dump the currency because of
worries that a government austerity plan to emerge from economic crisis
would
fail.
Yeltsin said on Friday there would be no devaluation. But the Kremlin
said he
had approved the moves during talks with Kiriyenko and Chubais on
Sunday.
"I consider today's actions taken by the Russian government an adequate
and
timely response to the extremely difficult financial situation which was
threatening the economic and political stability of the country,"
Chubais
said.
Labour unions have threatened nationwide strikes in October over unpaid
wages.
Worsening living conditions would add fuel to their protests.
Soon after the moves were announced, top Kremlin economic aide Alexander
Livshits tendered his resignation, Interfax news agency reported.
The Ekho-Moskvy radio station said Kremlin administration head Valentin
Yumashev had asked central bank chairman Sergei Dubinin to step down,
although
Dubinin had refused. The central bank declined comment.
Yeltsin later named tax service chief Boris Fyodorov as a deputy prime
minister responsible for macroeconomics and management of state debt, a
Kremlin spokesman said.
The government forged its new economic policy during a series of weekend
meetings.
Kiriyenko huddled with Chubais, Dubinin and Finance Minister Mikhail
Zadornov
on Saturday, and then won approval on Sunday from Yeltsin, who has been
on
holiday for the past month.
The president, who during a brief public appearance on Friday appeared
confused at times and briefly had trouble recognising a top aide, met
Kiriyenko again on Monday.
The Communist-dominated State Duma lower house of parliament said it
would
interrupt its summer recess to meet in emergency session on Friday.
The government wants the Duma to approve more austerity measures to
improve
tax collection and boost the ailing economy, which by official
statistics is
in a decade-long depression.
"It is total bankruptcy," said Communist leader Gennady Zyuganov. "We
think
that it (devaluation) is first of all a blow for the poorest. Prices
will jump
high, most banks except the biggest will collapse."
In separate statements, both the finance minister and the central bank
chief
said the moves were intended to protect citizens and domestic producers
from a
market gone haywire.
Analysts said the actions amounted to an acknowledgement that the
Russian
government could no longer defend the rouble.
"It's tantamount to devaluation," said Charles Blitzer, chief emerging
markets
economist at Donaldson, Lufkin & Jenrettein London. "We'll have to see
whether
the authorities can keep the devaluation controlled or not."
"This is a devaluation in progress and is not the end of the story,"
said
Claudio Demolli, emerging markets economist at ABN Amro in London. "The
risk
is still very much to the downside for the rouble."
Russia announced it was halting payments of some foreign debts, by banks
and
companies, for 90 days and banning foreigners from investing in
short-term
treasury bills. But a senior Finance Ministry source told Reuters the
moratorium did not affect the government's foreign debt.
The moratorium nevertheless undermined confidence in Russia's ability to
service its debt, triggering a slide in the price of its Eurobonds,
traders
said.
"There are limits to how many times Russia can come to the market and
say
everything is okay," said one trader. "If it can default once and refuse
to
admit that it is defaulting, it can do it again."
--
Gregory Schwartz
Dept. of Political Science
York University
4700 Keele St.
Toronto, Ontario
M3J 1P3
Canada
Tel: (416) 736-5265
Fax: (416) 736-5686
Web: http://www.yorku.ca/dept/polisci
