WORLDJUNE 8, 1998 VOL. 151 NO. 22
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Economic Meltdown
If investors continue to take the money and run, all of Yeltsin's
hard-earned stability could collapse
By BRUCE W. NELAN
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he thunder out of Asia rolled into Russia last week, shaking the already
wobbly economy and its twitchy investors. A spate of panic selling sent
the stock market plunging and plunging, and it ended the week worth half
as much as it was a year ago. Even before the bubble popped in Thailand,
South Korea and Indonesia, Boris Yeltsin's government was living
dangerously. It was juggling $150 billion in foreign debt, running huge
budget deficits and resorting to a kind of pyramid scheme in which it
was selling new treasury bills to pay interest on those it had sold
earlier.
Now foreign investors, burned by losses in Asia, are taking their money
and heading for the exits. Trying desperately to hold on to them and
avoid devaluing the ruble, the central bank last week upped its interest
rate to 150%. Some experts are talking about a meltdown, but it's more
like a drought. Russia's cash flow has dried up.
This is not a new problem, and it is mostly Moscow's fault. Yeltsin and
his several governments have never learned how to collect the billions
in taxes that corporations and individuals dodge. Other billions are not
collected because of sweetheart deals Yeltsin made with Russian
oligarchs when he needed their political support.
Nor has Russia figured out how to manufacture things anyone wants to
buy, so its foreign-currency earnings come mostly from sales of oil and
gas. Falling oil prices mean more cash shortages and still another
unexpected problem. Last week the Russian government hoped to sell off a
major oil corporation, Rosneft, and earn $2.1 billion, but there were no
bidders.
The central bank's reserves have dwindled to about $14 billion, and the
Kremlin's great fear is that it will have to devalue the ruble. That
would cruelly increase prices for ordinary Russian citizens, cause
social and political upheaval and dash Yeltsin's hopes for his legacy as
a reformer. At the Kremlin on Friday, he vowed there would be no
devaluation and issued a fusillade of decrees on how to get tough with
tax dodgers. He fired the chief tax collector and replaced him with
Boris Fyodorov, a former Finance Minister and a true reformer. Yeltsin
also announced plans to cut spending 12%.
The International Monetary Fund concluded, or pretended to conclude,
that Yeltsin's deficit-fighting plans sounded good enough for it to hand
over a delayed installment of $670 million, part of a $10 billion loan
package. While the IMF denies it is planning a big, new rescue effort,
many financial analysts say that is what it will take to restore
confidence. With that in mind, Anatoli Chubais, a former Deputy Prime
Minister, arrived in Washington Friday on an emergency mission to talk
with the U.S. Treasury, the IMF and the World Bank.
--Reported by Andrew Meier /Moscow |
