Russia plagued by market crisis and debt
03:06 p.m Jul 30, 1998 Eastern
By Peter Henderson
MOSCOW (Reuters) - Blackouts plague Russia's far east but lights burn
bright at the Finance Ministry in Moscow as Russia battles two crises,
one in the markets and one in the real economy.
The government is fighting for its fiscal life to repay crushing debts
that could sink the stagnant economy, but it also must enact reforms
meant to spur companies first to pay taxes and secondly to pay each
other.
Russia feeds itself from its dachas -- country houses where workers
unpaid for months spend their weekends growing potatoes to tide them
over until companies pay their wages. The economy has yet to get back on
its feet after half a decade of crisis.
There is a lot to pay. Factories and firms owed overdue arrears of a
startling 1.07 trillion rubles ($173 billion) in June, 4 percent more
than in May, including 70 billion rubles ($11 billion) in overdue wages.
Most Russian companies limp by, selling a tenth or a fifth of their
wares for cash, bartering for supplies and building up arrears to
employees and other firms with nowhere else to go.
Meanwhile, in Moscow's shiny new office towers, young turks make grim
jokes about the markets, watching stock major indices which have lost
almost two-thirds of their value this year.
''I didn't guess this would happen,'' said one shocked young economist
at a Western firm in Moscow. He and his colleagues have an office
sweepstake on when the ruble will slip out of control. ''The most
popular dates are not far away,'' he said.
A stable ruble and low inflation are the clearest and widest indicators
of confidence in the government. The ruble's post-reform strength is the
result of the central bank's refusal to print money or give baseless
credits to industry.
During 10 months of crisis there has been no run on the banks,
indicating some popular belief in the government, though Russians have
tucked away at least $20 billion in hard currency, the largest hoard of
U.S. dollars outside the United States.
The crisis is in the markets where nervous foreigners threaten to take
home funds they have invested in Russian ruble debt, up to a third of
the $65 billion market.
However, the key is not the size of Russia's total debt, less than 50
percent of gross domestic product, but when it is due.
''If you look at the numbers in Russia, they're not frightening,'' said
Mohamed El-Erian, head of European emerging market research at Salomon
Smith Barney investment bank. ''The big question is how do you deal with
the maturity of the debt.''
Russia has issued mostly short-term t-bills, which has proved a
nightmare since chill Asian winds swept into the country, upsetting
investor confidence and sparking a home-grown crisis.
About two-thirds of Russia's ruble debt is due within a year and the
government, which already spends every third ruble on debt payments,
would double the debt in no time if it rolled over $40 billion at
current rates of over 70 percent.
If it could not repay or manage the debt, it might have to freeze it, or
simply start up the ruble printing presses.
The government has bought itself time to impress investors and improve
its own finances by rescheduling about $4.4 billion short-term debt.
That leaves about $12 billion falling due within three months, the
window in which the anti-crisis program of Prime Minister Sergei
Kiriyenko must start to bite.
''November is the first month when we should get full returns from all
of the newly introduced taxes and balance the budget,'' he said after
getting an International Monetary Fund promise of $11.2 billion in new
aid this year.
An IMF-agreed plan calls for second-half federal revenues to rise by 25
percent against the first half to 161 billion rubles.
Taxes have already been raised, spending cut, and now Russia and
investors are waiting for the government to get tough.
''Weaknesses in implementation have been the Achilles heel of Russia's
economic policies in the past,'' said Stanley Fischer, the IMF's deputy
managing director.
The tough new head of the State Tax Service, former banker Boris
Fyodorov, has said Russia should gather most of its taxes from personal
income tax. More than half the population don't pay taxes.
The IMF agreed for now that Russia should create a special unit for
large taxpayers, especially those with major arrears such as Gazprom,
the largest natural gas company in the world and Russia's largest
taxpayer.
Gazprom owes the federal government about $2 billion in tax arrears. It
promised to pay $650 million cash a month, beginning in July, after the
government seized Gazprom property.
If Gazprom fails to pay up, and unofficial sources say it won't, the
government has threatened seizure again.
But Gazprom is not simply a company that refuses to pay taxes -- it also
keeps the country going by supplying natural gas, without getting paid,
to companies and the government.
Such tangled webs keep the lights flickering in the far east.
Copyright 1998 Reuters Limited. |
