Russian Stocks Surge Back
As Yeltsin Goes into Action
An INTERACTIVE JOURNAL News Roundup
MOSCOW -- Russian stocks rebounded a strong 12.2% Tuesday as
President Boris Yeltsin upbraided some of the country's top business leaders
for not sticking by the country's young markets. The session more than
erased a rout on Monday, when stocks shed 10%.
Despite the gust of support, fueled by a rebound in treasury instruments and
the possibility of a Western aid package, expectations of an extended
recovery were checked by thin volume and speculation that the central bank
may have helped boost the treasury market.
The Russia Trading System (RTS) index closed at 192.73 points, up 12.2%
from Monday's close of 171.71 points. The index fell 10.24% Monday. The
seesawing stock market already appears to have claimed one victim - a
little-used stock futures exchange, the Russia Exchange. The exchange
didn't function Tuesday after trading was interrupted Monday when brokers
were unable to meet some margin calls.
Moreover, it's far from clear the International Monetary Fund is planning to
issue further loans to Russia. The IMF and several Russian government
officials have denied such a plan exists, although a former top Yeltsin
administration official -- Anatoly Chubais -- made an unusual trip to
Washington, D.C., last week and met with top IMF and U.S. officials.
"Right now the storm is either clearing or it's brewing," said Charlie Ryan,
head of United Financial Group brokerage in Moscow. "Markets tend to
punish when expectations are not fulfilled."
Mr. Yeltsin scolded Russia's most powerful businessmen for their
financial-market activities Tuesday as suspense grew over whether the
country will receive emergency aid from the West.
Trying to halt the slide in Russia's financial markets, Mr. Yeltsin summoned
government and business leaders to the Kremlin. There he told an audience
of so-called oligarchs that as domestic investment has left the country's
financial markets recently it has spurred foreign capital to take similar flight.
"Foreign investors react very quickly," Mr. Yeltsin told 10 of the men who
control the country's banking conglomerates. "If you want foreign investors
to keep their money here then you must tell your own investors not to pull
out."
The Russian stock market, which led the world last year, has gone to the
opposite extreme in 1998, becoming the year's worst-performing exchange.
Many analysts worry the crisis could lead to a run on the fragile national
currency, the ruble.
The ruble closed higher against the dollar in very subdued trading Tuesday,
while government bonds (GKOs) ended sharply higher. The dollar for
next-day delivery closed at 6.1600-6.1650 rubles, down from 6.1800-6.1850
rubles Monday. GKO's with one-year maturities ended with a yield around
65%, down from an average around 68% Monday. In the maturities up to
two months, the drop was even sharper: from around 90% to approximately
60%.
After the government's drastic move last week to defend markets by tripling
interest rates to 150%, participants are interested in the outcome of the
weekly debt auction set for Wednesday, when the Finance Ministry will
offer 16.5 billion rubles of bonds. The finance ministry has decided to sell at
the auction one-week treasuries, the shortest duration ever, as appetite for
longer-term paper has dried up amid fears of a devaluation of the ruble. The
deputy chairman of the Central Bank, Sergei Alexashenko, said he expects
Wednesday's treasury auction to go smoothly, despite worries the
government wouldn't find enough buyers to cover an unusually large volume
of redemptions.
In addition to chastising the Russian business leaders Tuesday, Mr. Yeltsin
also took aim at the country's failing tax-collection system, which is at the
core of the country's financial crisis and the source of nagging complaints
from the IMF. He called in top law-enforcement officials Tuesday to
demand that they crack down on businesses and individuals who are evading
taxes, a practice that has become commonplace as Russia's underground
economy has flourished. "The tax situation has not improved, only worsened,
especially in recent months," a gruff-sounding Mr. Yeltsin said in footage
broadcast on national television.
Investors' panic began last week, triggered by reverberations from the Asian
financial crisis, a wave of workers' strikes, and a drop in world oil and gas
prices. Russia is heavily dependent on oil and gas exports.
In a reassuring move on this front, the government began paying coal miners
their back wages. The government has paid three months' back wages to
miners in the Kuzbass region, a trade union official told the ITAR-Tass
news agency Tuesday. The Kuzbass is the country's primary coal area and
one of the centers of the recent unrest. In addition, the Interfax news
agency quoted Deputy Prime Minister Boris Nemtsov as saying the
government had begun to make money available to coal consumers in the
Rostov region so they could repay their debts to coal companies. The coal
companies have said they couldn't pay back wages because they were
owed too much money themselves.
The central bank's Mr. Alexashenko acknowledged Tuesday that the bank
has spent nearly $1 billion in reserves over the past month to support the
ruble. However, he said the bank now has $14.6 billion in reserves, up from
a low of $14 billion last week, and that the bank hasn't had to intervene in
recent days.
Speculation is growing that Russia will need a rescue package from the
International Monetary Fund, similar to the ones arranged after Asia's
financial crisis hit last year.
An IMF package has double-barreled implications for the economy and
markets. On one hand, speculation that Western governments and the IMF
would soon announce a bailout was a positive market factor Tuesday.
Russia's continuing dependence on emergency credit, on the other hand,
could further erode confidence in the fundamental health of the country's
young markets, as well as in emerging markets world-wide.
The government, seeking to avoid the appearance of a crisis, argues that
Russia's underlying economic indicators remain steady: the economy grew a
nominal 0.8% last year, and inflation is in the single digits.
The central bank's Mr. Alexashenko said Tuesday that Russia can get
through the crisis with the moral support of Western governments. He said
Moscow recognizes that it must solve longer-term problems, such as tax
collection, to prevent further market crises. Western aid, he said, would only
be a temporary help.
The bank official said Prime Minister Sergei Kiriyenko met with top
Western bankers on Monday, but discussions were only about current
market conditions. "This generated a very positive reaction," he said. "There
was no question of 'give us money.'"
Yeltsin spokesman Sergei Yastrzhembsky said Tuesday, "The most
important thing is to rely on our own resources and agree on joint responses
by government and business and financial circles."
Japanese Prime Minister Ryutaro Hashimoto late Tuesday said that Russia
hadn't formally requested IMF aid. "What I have confirmed now is that
Russia hasn't requested [aid] from the IMF," Mr. Hashimoto said, speaking
to reporters in parliament. He added that, unless the IMF gets more funding,
meeting additional loan requests would be difficult. This was an apparent
reference to stalled legislation in the U.S. Congress that would provide $18
billion in U.S. funds for the agency.
Japan's Kyodo News, meanwhile, reported in a dispatch from Washington
that deputies for the Group of Seven finance ministers will meet in Paris
next week to discuss ways to alleviate the financial crisis in Russia. The
G-7, an organization of seven major industrialized nations, includes the U.S.,
Canada, Britain, France, Italy, Germany and Japan. The group recently
broadened its ranks to include Russia in most of its gatherings.
Quoting informed sources, Kyodo said the deputies are expected to study
the use of a special reserve facility in the IMF to grant Russia an
emergency loan. Kyodo didn't say the deputies would discuss the weakness
of the yen, although other news reports on Tuesday have raised that
likelihood.
Russian officials have had trouble meeting the stiff conditions that
accompany such aid. The IMF has held up recent installments of an earlier
loan to try to force Russian compliance with the terms, which include
improved tax collection and limits on government spending. |
