If the market does not rise 30%, the news is not that bullish...
I guess, the truth might be that the statement was made to prevent
the market from imminent collapse. Looks like a) the IMF package
might be smaller than the market expected; the fund does not have
much cash left after the asian bailout. b) The central bank reserves are melting quickly. As for "confidence" the money will be raised
through taxes - it might be just lack of confidence that they can
sell the long-term bonds. They could not sell Rosneft', again.
They could not refinance short-term debt. Here is another piece of
news. It will remain pretty scary until the market tells otherwise.
I believe, market rise from these levels should be sharp.
MOSCOW, July 8 (AFP) - Little by little the meagre reserves of
the Russian central bank are being depleted, increasing the danger
of devaluation of the ruble which would lead to collapse of the
economy and deal a fatal blow to reformers, analysts said here on
Wednesday.
A few figures define the threat: press reports say the bank has
been spending 300-500 million dollars a day to support the ruble and
that its reserves have fallen to 11 billion dollars.
In addition treasury bonds carrying very high yields fall due in
July and August.
Investors are deserting Russian financial markets and economists
hold that at this rate the central bank will not be able to hold out
for long.
The Russian government is negotiating with its back against a
wall of debt to obtain a so-called stability loan from the
International Monetary Fund (IMF) which it hopes will amount to
10-15 billion dollars.
Ministers have said that such funds would be put aside to
support the ruble.
The Russian official responsible for negotiating with foreign
lenders, Anatoly Chubais, said Tuesday that the IMF would announce
details of a rescue on Thursday but financial markets abound with
rumours that the Fund will provide only six billion dollars.
Finance Minister Mikhail Zadornov warned last week that
devaluation would have "catastrophic consequences" for Russia which
would far outweigh the advantages put forward in some quarters.
Only days earlier President Boris Yeltsin had announced crisis
economic measures.
The sudden talk of devaluation by Zadornov was seen here as an
attempt to put pressure on the lower house of parliament, the Duma,
to approve the crisis measures, but some analysts in Frankfurt saw
them also as an attempt to pressure the IMF.
One western banker explained: "The vicious circle which is
dragging Russia into an economic abyss would begin by a resurgence
of inflation ... and a return of the use of the dollar in the
economy."
Nearly 70 percent of products consumed in Russsia are imported
and paid for in foreign currency, he said.
Inflation would reduce disposable incomes of the population and
consumption would slump, and at the same time the state would
increase its deficit further, automatically increasing its foreign
debt in dollars.
Recent stability of the ruble is one of the few achievements of
six years of reforms to convert the former Soviet command economy
into a market economy based on capital.
Zadornov has calculated that only 30 of 1,500 banks in Russia
would survive a big devaluation of the ruble.
Another western economist said that devaluation would amount to
a death sentence for the government of young reformers which
launched the crisis plan to save the country from insolvency.
Among factors which have shaken the economy are the crisis in
Asia and a slump of world oil prices. Russia is a leading producer
and exporter of hydrocarbons.
Legislative elections are to be held in less than 18 months'
time and failure of reforms would be seen as a great victory for the
Communists.
At the Russian-European Centre for policy strategy, analyst Al
Breach said that "in principle a devaluation of 15 to 20 percent
could be beneficial" because it would enable the government to
increase its funds in the short term owing to taxation of companies
exporting goods in return for payment in dollars.
But the ruble might lose 40 to 60 percent of its value, he
warned.
"The major threat of devaluation is that it runs out of control
and that Russia ends up in the same situation as Indonesia," he said
referring to massive inflation.
Most experts here hold that the best solution would be a change
of the range within which the ruble may fluctuate involving a small
depreciation of the currency.
At Alfa Capital brokerage, Irene Shevshenko said: "That would
have the effect of bringing back confidence and of avoiding a
shock."
But Al Breach said that in order to do this the government had
to obtain help from abroad, and notably from the IMF since an IMF
loan would ease pressure against the ruble during the two difficult
months of July and August.
While financiers await the decision by the IMF, which is
expected before the end of the week, the ruble steadied on Wednesday
at 6.239 to the dollar on the interbank market. |
