***OFF TOPIC*** Russian problems. I saw an interesting interview on CNBC this morning. The woman interviewed works for a money management firm in Russia. She said the Russians were handling the current Russian problems better than the foreigners, because the Russians understood the situation better. She didn't seem to regard the current problems as a real crisis yet, and thought a devaluation of the Russian currency was unlikely. She said that Russian interest rates were as high as 200%, which was too high in her opinion. Asked about the frequent stock market halts because of the plunging stock prices, she said the Russians were much more familiar with this than the foreigners (personally, I thought the Russian stock market just opened up a few years ago, but what do I know?).
I wish I had been paying more attention to the interview, but I was munching on a nectarine at the time, which was both crunchy and delicious.
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The article below is from Bloomberg on the current Russian situation.
bloomberg.com
>>>>>>>>>>>>>>>>>>>>>>>>>>
Bloomberg Online: Top News
Top NewsThu, 13 Aug 1998
8/13 Russian Stocks and Bonds Plunge as Effort to Shore Up Ruble Backfires
Russian Currency Controls Send Stocks, Bonds Plunging
Moscow, Aug. 13 (Bloomberg) -- Russia's efforts to protect
the ruble by restricting banks' foreign currency operations
backfired, sending stocks and bonds tumbling on concern the
nation's banks are in trouble and the ruble is set to devalue.
The RTS stock index sank 11.1 percent to a 27-month low.
Three-month Treasury bill yields rose to 149.57 percent, up 29
percentage points from yesterday. The ruble fell to 6.299 per
dollar from 6.296 yesterday.
''We're coming to a climax, a situation where something
fairly dramatic will happen in the short term,'' said Sonja
Gibbs, chief strategist at Nomura International in London.
''They're constantly having to run to keep up. They're trying to
hit a moving target.''
The Bank of Russia set controls on banks' foreign currency
operations -- including limits on some banks for purchasing
dollars and a required one-day advance deposit at the central
bank for foreign currency -- after many banks actively sold the
currency for dollars and stopped making payments to one another
and to foreign lenders.
Investors' concerns were compounded by billionaire financier
George Soros' call for a ruble devaluation, cited in a letter he
wrote to the Financial Times. Soros said the ruble should be
pegged to the dollar or euro.
'Last-Ditch'
''Devaluation concerns keep popping up more and more,'' said
Dan Rapoport, sales director at Russian brokerage CentreInvest.
The central bank's action ''is definitely a last-ditch effort''
to avoid devaluation, he said.
The central bank yesterday initially curbed foreign currency
purchases for all commercial banks, in a move to prevent them
from dumping rubles for dollars and to help bolster central bank
reserves. That pushed rubles for September delivery down 16.4
percent in Chicago yesterday to 12.5 cents, compared with 16
cents at the central bank's exchange rate.
The central bank later retracted that decision on concern
limiting the supply of foreign currency would hurt ruble-dollar
rates on the interbank market, said Andrei Cherepanov, head of
the central bank's foreign operations.
''If we didn't retract the decision, interbank rates could
go above 7 rubles per dollar, and the population would flee the
ruble,'' he said.
The central bank instead decided to lower dollar purchase
limits for some banks and raise limits for others to ensure the
amount of foreign exchange available in the market remains the
same, and only the most stable banks dominate trading in foreign
currency, he said.
The Bank of Russia also said banks wanting to purchase
dollars must make a ruble deposit one day in advance. The
measures take effect today.
''We want the market to have enough dollars to meet
demand,'' Cherepanov said.
Buying Dollars
Russian banks have been buying dollars to honor currency
forward contracts that mature tomorrow, as well as to meet
foreign debt obligations, draining the central bank of foreign
currency reserves, which stood at $18.4 billion on July 31.
Russian banks' outstanding forward contracts amount to more than
$10 billion and come due on Aug. 15, Sept. 15, and Oct. 15.
In addition, some Russian banks have loans from foreign
banks that come due this month, including a $115 million loan led
by Deutsche Bank to Inkombank.
For the most part, the banks already have agreed with the
lenders to roll over part of the loans, analysts said. Inkombank
said it took out a separate $63.5 million loan recently to help
refinance the loan due in August.
Two banks, Inkombank and Rossiysky Kredit Bank ''failed to
honor margin calls from their foreign creditors yesterday,''
prompting banks to stop lending to one another, said Maxim
Shashenkov, a director at OAO Alfa Bank in Moscow, which he said
hasn't been actively buying dollars and has only $8 million in
forward contracts.
Inkombank said it's met all its foreign obligations.
Rossiysky Kredit Bank officials weren't available for comment.
The central bank's Cherepanov said some banks had failed to
pay foreign lenders on margin calls this week, but refused to
name the banks. The banks faced margin calls when price of bonds
they used as loan collateral fell and lenders demanded additional
payment.
'Negative Tendencies'
In a statement, the central bank said it wants ''to stop
the negative tendencies and increase the control of banks'
activities.'' It cited ''a renewal of the crisis of trust on the
interbank market, a worsening of payment obligations.''
It also said the decision ''does not affect the
convertibility of the Russian ruble and the existing system of
hard currency regulations.''
''All the actions of the central bank supports their policy
that they don't intend to change the path of the ruble,'' said
Margo Jacobs, a banking analyst at United Financial Group in
Moscow. ''Some people in the market are worried about
devaluation, but it's too early to take any steps.''
In addition to buying dollars to meet foreign debt
obligations, many banks have been buying dollars for short-term
profit, acquiring dollars from the central bank in the morning
and selling at a higher price in the afternoon. By selling banks
dollars in the morning, the central bank was more reluctant to
intervene in the currency market in the afternoon, making it
difficult to keep the ruble stable, Jacobs said.
The arbitrage reflects ''banks' preferring to put any free
money they have into dollars rather rubles,'' she said. ''The
central bank wants to make sure they have good ruble liquidity.
It could be that banks with forward exposure remaining are
worried about the path of the currency for the next months.''
Fueling Concern
Russian officials reiterated pledges the government will
meet all its debt obligations, which total more than $24 billion
this year, and leave monetary policy unchanged.
They blamed the recent slump in Russian stock and bond
markets on global market declines and concerns about Asia's
economic slowdown.
Prime Minister Sergei Kiriyenko, speaking on Russian TV
channel NTV, said the ''worse it gets, the more strict we have to
be about fulfilling our austerity plan.''
The government has pledged to boost revenue by more than 100
billion rubles, through new tax measures and better collection,
part of a promise to international lenders that plan to give
Russia a total $22.6 billion in loans this year and next.
While the government has enough money to meet its obligations in the short term, it may face a new cash shortage in mid-November, analysts said.
''From our calculations, they've got at least another two-
and-a-half months before they end up with a real crunch,'' Jacobs said.
© Copyright 1998, Bloomberg L.P.
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