NATIONS DOING REVERSE SPLITS???? WE all know what happens to companies that do them.
By Alastair Macdonald
MOSCOW, Sept 17 - Russia's central bank, tackling the financial crisis even before Prime Minister Yevgeny Primakov has finished forming a government, said on Thursday it would print money to pay off state debts and re-float banks.
The move appeared to confirm fears that had already sent the rouble into a new dive as savers worried that Primakov, a compromise choice between President Boris Yeltsin and the Communists, would re-ignite rampant inflation in his attempts to temper market reforms with aid for local industry and welfare.
Yeltsin seemed set to drag out the process of completing the government line-up when he said he might need up to another week to study Primakov's proposals, especially for finance minister.
But, after nearly a month without a fully fledged cabinet following Yeltsin's dismissal of Sergei Kiriyenko as premier, anxious allies and foreign creditors began arriving in Moscow seeking assurances that the crisis was being handled.
German Foreign Minister Klaus Kinkel said the European Union had every confidence in Primakov, Russia's former foreign minister. He later met the new premier along with British and Austrian ministers forming the EU's diplomatic troika.
U.S. Deputy Treasury Secretary Lawrence Summers told Congress that Russia faced a return of ruinous inflation -- which hit four digits in 1992 -- if it did not bite the bullet and rein in spending and deal with weaknesses in its banks.
"They must resist pressures to spend and lend which will doom the economy to another bout of high, perhaps hyperinflation," he said in prepared remarks.
Yet while centrist new First Deputy Prime Minister Alexander Shokhin hit out at predictions of new monetary emission, that was exactly what the central bank, now headed again by Soviet-era chief Viktor Gerashchenko, seemed to be doing.
"Emission, of course, emission," the bank's First Deputy Chairman Andrei Kozlov told Reuters when asked how the central bank planned to fund a promise to buy back for cash virtually worthless government debt from Russian banks.
The dilemma facing Primakov and his Communist first deputy Yuri Maslyukov, a former Soviet central planning chief, is whether to continue with austerity that kept inflation low but left millions of Russians, including the army and pensionsers, without any money at all or creating money of diminishing value.
Kiriyenko's administration froze payments on some $40 billion of government debt exactly a month ago, on August 17, virtually admitting the Russian state had gone bankrupt.
Under the central bank scheme, local commercial banks can use some of their obligatory reserves at the central bank to make payments. The move would treat the sclerosis in the Russian banking system that has
left many savers' accounts frozen and importers unable to replenish the shelves of big city stores.
But the offer to buy back bills only from Russian banks brought criticism from Western institutions facing big losses.
"They've openly announced they're going to discriminate in favour of Russian banks," said Stuart Brown, an analyst at Banque Paribas in London. "It also looks like the first stages of a bailout of banks who probably shouldn't be bailed out."
Boris Nemtsov, a liberal who lost his job as deputy prime minister in the bloodletting that followed last month's financial collapse, accused his successors of "stupid policies".
"To print a lot of money, that's the first message. To print money, that's the second message, and to print money, that's the third message, and no more," he told Reuters Television.
Primakov has told major creditors like the International Monetary Fund that he will press on with market reforms.
But foreign investors have voted with their feet in the opposite direction. The American Chamber of Commerce in Russia said U.S. companies were slashing jobs.
"We all of us believed in the reform process," chamber head Scott Blacklin said. "And now it turns out we were wrong."
The rouble, which lost some 30 percent of its value on the streets of Moscow on Wednesday, was weaker again. On the SELT electronic trading system of the Moscow Interbank Currency Exchange (MICEX), it was
traded 15.80 per dollar compared with an official 12.4509 on Wednesday. It was worth 6.5 a month ago. Primakov met several regional governors on Tuesday. The former spymaster needs to impose Moscow's will on an economy increasingly fragmented into regional fiefdoms and plagued by the corruption that marred all earlier
attempts at reform.
Yeltsin met former Japanese Prime Minister Ryutaro Hashimoto -- with whom he has warm relations -- and spoke of improvement in ties with Tokyo, a potentially big investor in Russia.
He also met his defence and interior ministers and promised to pay off some wage arrears to the army. In what could be seen as a sign of nervousness ahead of trade union protests planned for October 7, Yeltsin signed a series of police orders to crack down on riots and any attempts to block roads and railways.
Mikhail Shmakov, leader of Russia's Federation of Independent Trade Unions, told a news conference that in the months since the protest was first planned the plight of workers in the country had worsened "beyond our most horrible dreams."
On his way back home, the president, according to the Kremlin, stopped at a food store to talk to Moscow shoppers about the problems of rising prices and falling roubles.
It was a rare public excursion for the 67-year-old leader, who has seemed increasingly weak and isolated since giving in to parliament, prompting speculation he may step down early. |
