ANALYSIS-Russia confidence down-is $15 bln enough?
11:52 a.m. Jun 30, 1998 Eastern
By Peter Henderson
MOSCOW, June 30 (Reuters) - Everyone agrees Russia needs international
help and signs are that it will get it soon, but analysts are divided on
whether $10-$15 billion will be enough to weather the financial crisis.
Russia needs funds to avoid cracking its budget, sending shock waves
through a society already rent by strikes and protest.
Markets have bounced wildly this year, so far always ending down with
capital flight leaving central bank reserves rattling and the finance
ministry with few buyers for its debt.
Now markets, largely ignoring government battles with parliament to push
through an anti-crisis programme, are focusing on a $10-$15 billion aid
package under negotiation between Russia, the International Monetary
Fund and others.
''Sentiment is based now almost entirely on the probability, the size
and the timing of the IMF package,'' said Bill Browder, head of
Hermitage Capital, a major equity fund.
A crisis of confidence has hit the share market, which has lost almost
two-thirds of its value this year, and the treasury bill market, where
yields hover around 80 percent.
The government's exposure to foreign capital flight is mostly based on
the T-bill market. July may be torture for the finance ministry, which
must redeem $6.5 billion in maturing issues on the five Wednesdays, when
new auctions will be held.
The ministry has cancelled some auctions recently when prices have not
met its approval, an expensive option that eats up rouble and dollar
reserves, dwindling despite a $670 million IMF loan tranche forwarded to
Russia on Tuesday.
''I think they have until July 22 until the money runs out,'' said Eric
Fine, Russia and East Europe debt strategist at Morgan Stanley in
London. He based his assumption on Russia not getting or raising new
funds abroad and investors rolling over half their maturing debt.
The key to bringing the market back on track would be fresh interest in
acquiring Russian paper, which would drive down yields and give the
government breathing room.
If investors rolled over proceeds from maturing debt into new issues,
Russia could lengthen maturities, essentially bailing itself out of a
crunch of short-term debt.
Fine said the type of package Russia is touting would raise foreign
reserves enough to easily cover commitments to foreign investors'
holdings of treasury bills, about $16 billion at current market prices
or about $22 billion at nominal value, and therefore would restore
confidence.
''As of today I think $10-$15 (billion) does the job.''
Russia's nightmare would be if foreigners continued to flee, simply
exiting as debt matured.
That would leave Russia paying top dollar to foreigners repatriating
profits that were expected to give the state room to make changes. Those
changes must improve the lives of average Russians who go to the polls
for parliament and president in 1999 and 2000, and many of whom are
already protesting.
Fine said a ''scorched earth'' scenario could see Russia facing a $44
billion external financing shortfall over the next year.
Enormous financial and political pressure would come to bear on Russia,
already successfully facing down rumours of impending rouble
devaluation, just when it could least afford it.
''It is a grame of brinkmanship which may misfire,'' said Daiwa
Securities senior economist Vlad Sobell in London.
''The sentiment is so negative that it really takes an awful lot of work
to reverse it. That is why I am beginning to worry that even should the
$15 billion be forthcoming...it will be an uphill struggle.''
He said the IMF had waited for too long to send the government funds --
the tools it needed to begin reviving the economy. He predicted a bright
outcome, since Russia's short-term problem was not turning the economy
but encouraging investors. ''This is purely psychological.''
((Moscow Newsroom, +7095 941-8520 moscow.newsroom+reuters.com))
Copyright 1998 Reuters Limited. |
