It looks like the government is making all the right steps right
now. The ruble is not overvalued, and the government absolutely
has to defend it because devaluation will hit ordinary Russians
and lead to civil war. There are troubles in the south (near
Chechnya) once again. -Vi
MOSCOW, May 28 (AFP) - Russia's government is defending the
ruble at all costs because a curreny collapse would undermine seven
years of market reforms, touch off Asian-syle economic collapse, and
have dire political consequences, analysts said Thursday.
Moreover, the currency is not overvalued at all, is perfectly
sustainable at current values of around 6.15 to the dollar, and has
only come under intense pressure because of the stampede of nervous
capital leaving the market, they added.
But the government will need emergency help from the West to
underpin monetary policy and take the panic out of a financial
system teetering on the brink of collapse.
President Boris Yeltsin threw his weight Thursday behind
government efforts to convince investors that ruble devaluation is
not on the cards, stressing that the Central Bank, which hiked
interest rates to 150 percent Wednesday to underpin the ruble, "has
enough reserves" to defend the currency.
Amid market panic which has seen stocks lose 40 percent this
month alone and bond yields spiral unchecked, the government has
stuck firmly to ruble defence as the main plank in its
damage-limitation exercise.
Economists said this was because the ruble was not overvalued at
current rates, and that a currency slide would trigger economic,
social and political turmoil.
Large swathes of the banking sector would go under, inflation
would recur hitting the ordinary Russian hard and ultimately driving
up the cost of borrowing. And the whole process would be
self-feeding.
"Devaluation will destroy stability and that is why the
government has made the right moves," said Vladimir Drebentsov, a
World Bank economist. "A new round of inflation would ensue and the
real sector (industry) will be hurt along with economic growth."
Chris Speckhard, an economist with Alfa Capital investment bank,
said: "If there was a devaluation and the government lost the main
macroeconomic achievement of the last four years, it wouldn't only
undermine the current government, but Yeltsin himself, because he is
standing behind Kiriyenko."
The ruble has earned a breather thanks to the brutally high
interest rates resorted to by the Central Bank, closing at 6.149 to
the dollar on the Moscow Interbank Currency Exchange from 6.175 on
Wednesday.
Economists said that taking basic economic parameters such as
balance of trade, or purchasing power parity, the ruble was in good
shape.
"Things are looking much better economically than they have for
a long while," said Rory MacFarquhar, an economist with the
Russian-European Centre for Economic Policy. "There is a lot of good
news which the market hasn't taken on board.
"Russia has in recent years run large current account surpluses
in sharp contrast to Southeast Asia," he said. "So on that ground it
would be very hard to argue that the ruble is overvalued."
But despite the improvements in Russia's macroeconomic
fundamentals, markets have been wasted by a chronic lack of
confidence, with investors nervous over the government's ability to
service its debt selling up their rubles and quitting Russia
altogether.
The central bank has spent some 1.5 billion dollars in recent
days defending its currency, bringing reserves down to around 14
billion dollars, ITAR-TASS reported, and analysts said that some
form of IMF help was now essential to restore confidence and ward
off speculators.
"The market right now is waiting for the IMF," Speckhard said.
"The best thing we can wait for right now is the IMF going to give
the next tranche" in a 10.2-billion-dollar loan, frozen since
January.
A senior IMF official was due in Moscow Thursday amid reports
that the Fund is also considering an additional credit facility to
help the government buy out its budget-busting short-term debt.
"The IMF have bungled, uttering all the wrong messages
publically, giving investors the impression that the government is
not doing a good job, when actually it is far more resolute than any
government in five or six years," said MacFarquhar.
"No one in the West wants to see this Russian experiment with
market reforms going sour just because the West was too slow to act
in an hour of need, so I think rapid help will be forthcoming and
that will be enough to restore confidence," he added. |
