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To: banco$ who wrote (18894)	9/15/1998 3:36:00 AM
From: Alex	Respond to of 116759

Will Russia Default on $200 Billion of Debt? MOSCOW -- Sometime next year, if it is unable to raise fresh money or delay payments, analysts expect that Russia will default on as much as $200 billion in foreign debt -- the largest default by any government in history. With only $12.3 billion in cash reserves in the treasury and with Russian companies' pockets virtually empty, the economy is in tatters. About $2 billion in debt comes due by the end of this year, and another $17 billion is due in 1999. So, like a homeowner with outsized mortgage payments, enormous bills and many mouths to feed -- and who has just lost a job and has scant savings -- Russia is on the precipice. It has already missed $247 million in interest payments. A debt moratorium is in place temporarily, but the bills will continue to stack up. Financial markets around the world have been rocked in recent weeks by the turmoil in Russia, and President Clinton called Monday for the world's industrial powers to confront "the biggest financial challenge facing the world in a half-century." With a new prime minister on board, Russia must address two problems simultaneously: its staggering debt and a devastated economy scarred by skyrocketing prices, unpaid wages, dwindling food supplies and the threat of even worse to come as winter approaches. How the Russian government tries to revive the economy, experts say, will have a profound bearing on its ability to get lenders to agree to restructure the debt. Russia has already damaged its credibility with foreign creditors by imposing the debt moratorium, so it is doubtful that any new solution will involve additional money. At the same time, market purists have reacted with scorn to the ascendance of Soviet-era economic advisers as Prime Minister Yevgeny Primakov tries to assemble a new Cabinet. These purists characterize Russia's new stewards as Stalinist retreads who desire a larger role for the state in managing the economy and are ready to print money to ease the cash crisis. The new regime's economic advisers say they want to preserve the strengths of the market while imposing tighter regulatory controls. They also advocate reversing the government's move to effectively devalue the ruble and impose a debt moratorium, decisions that precipitated the economic crisis. And they have invoked Franklin D. Roosevelt's New Deal as a model for helping the Russian economy recover. "Russia has lost the trust of its citizens in its financial and banking system," said Leonid Abalkin, a top Soviet economic planner in the 1980s and now director of Moscow's Institute of Economics, who met with government officials Monday to discuss economic strategies. "The first thing that one has to do is defend people and make them safe from poverty." Russia is not alone in fashioning an alternative to the market approach pressed by the Clinton administration and the International Monetary Fund. Leaders of countries with economies as diverse as Malaysia, China and Hong Kong have imposed or are considering imposing tighter controls on capital. How the West approaches Russia's debt problem, and how open it is to working with a Russia that wants to chart an economic course of its own, is going to be a delicate balancing act. An economic historian, Robert Kuttner, noted that it was international lenders' push for onerous debt repayments from Weimar Germany in the 1920s that led to hyperinflation there and the rise of the Nazis. "If you simply want Russia to repay its debts, the economy collapses," Kuttner said. "And if you only let currency speculators determine the value of the ruble, then you'll have hot money flying in and out of the country. What you need is for the Russian government and the international community to work together to control capital flight and the ruble's exchange rate and to support Russia's version of the New Deal." But other economists warn that printing rubles to stimulate demand in Russia is a recipe for disaster. "Either the government cuts expenditures drastically, allows banks to go bankrupt, and lets depositors receive only a share of the liquidated bank assets -- in essence, lives within its means," the Russian-European Centre for Economic Policy said in a recent report. "Or the central bank issues credits to cover any or all claims on the government. This is the path of hyperinflation. The first imposes pain on many of the powerful guilty parties in the current situation. The latter spreads the pain over all holders of rubles, hitting the poor hardest of all." But if loans are channeled to businesses and individuals, and if the state spends wisely, printing rubles may not be a disaster, proponents of the idea maintain. Americans do not have to look far for examples of the benefits of easy money. When the stock market crashed in 1987, and when American banks teetered on collapse shortly thereafter, Federal Reserve chairman Alan Greenspan helped revive the economy by sharply easing credit. "I think it's terrible that the Western powers are suggesting that Russia follows a model that none of them have followed during times of crisis," said David Kotz, an economics professor at the University of Massachusetts at Amherst. "There's room for a strong state role in guiding the economy and the claim that a departure from the free market represents a leap back to the Soviet past represents a serious misunderstanding of the Russian situation." "It is not in the Western interest to see Russia collapse," said Oleg Bogomolov, a former top Soviet economist now with the Russian Academy of Sciences who is advising the country's new leaders. "The policy of the West was mistaken and in part it will have to pay. It gave recommendations that didn't work and it gave credits that went to prolong a political regime rather than to solve our economic problems." The New York Times, September 15, 1998