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Politics : Clinton -- doomed & wagging, Japan collapses, Y2K bug, etc -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (384)	9/19/1998 9:04:00 PM
From: SOROS	Respond to of 1151

Wall Street Journal - 09/18/98 Russia's new government Friday disclosed figures showing the economy is contracting at a rapid pace while a government source said the struggling country hopes to start talks for a new aid program from the International Monetary Fund. Meanwhile, financial markets continued to weaken amid fears that the central bank will risk hyperinflation by starting up its printing presses to pay old government debts and support struggling banks. The Interfax news agency reported that Russia's gross domestic product fell 8.2% year-on-year in August. Citing figures from the State Statistics Committee, Interfax said the drop was the sharpest since 1994. In August, the nearly insolvent government defaulted on its domestic Treasury debt and devalued the ruble, after which the nation's financial markets collapsed. In the first eight months of 1998, Russia's GDP contracted by 2.1% from the same period of last year. The contraction of the Russian economy has accelerated in the course of the year, the statistics committee said. In the first four months of the year, Russia's GDP was unchanged from a year ago, while in May it contracted by 1.2%, in June by 1.6%, and in July by 4.5% from a year ago. Russia's financial crisis has crushed any hopes the government had at the beginning of the year that the country will finally achieve substantial economic growth. In 1997, the country's GDP rose by 0.4%, showing the first growth since the collapse of the Soviet Union. Separately, Interfax quoted a Russian government source Friday as saying that Russia and the IMF will have to start again on negotiations for a new aid program to help pull Russia out of its financial crisis. Such talks would face an uphill battle because of lack of a fully-formed cabinet and coherent economic policy. Russia and the IMF had agreed in July on a $22.6 billion package to shore up the country's collapsing financial markets. That agreement was imperiled by the previous government's Aug. 17 decision to devalue the ruble and default on some $40 billion in ruble-denominated Treasury debt, which the government couldn't afford to pay. Interfax quoted the government source as saying the aid package "has gone off the tracks." Prime Minister Yevgeny Primakov's new Communist-influenced government is depending on delivery of the second $4.3 billion tranche of the IMF loan to give it breathing room for implementing anticrisis measures, Deputy Prime Minister Alexander Shokhin said Thursday. He said the measures would help Russia balance its budget, pay for social programs and meet foreign obligations. Most analysts believe Russia's central bank will be forced to print more money if it can't gain access to other funds. But critics, most recently U.S. Deputy Treasury Secretary Lawrence Summers, have warned that any move to increase the money supply without boosting hard-currency reserves could spark hyperinflation. Mr. Shokhin said he hoped Russia and the IMF would be able to agree on the second tranche of the IMF package by Oct. 6. A Russian delegation will have the opportunity to negotiate directly with the IMF leadership early next month at the agency's annual meeting in Washington. Russia's central bank Thursday disclosed preliminary plans to boost liquidity in its cash-starved financial system, partly by printing more rubles. The new money is designed to help resolve payment problems in the banking system. The central bank plans to use the money to buy back locally held ruble-denominated Treasury bills -- known as GKOs and OFZs -- with maturities through the end of the year, at their face value. Russian banks hold a large amount of the $40 billion in virtually worthless paper. Officials have also said they will reconsider the terms of the debt's restructuring to appease foreign holders who will suffer heavy losses under the original terms. Meanwhile, market players suspect that the Russian central bank already has been printing piles of money to meet its domestic obligations, including unpaid state wages and pensions, and pump up the economy. Both the ruble and Russian stocks continued to lose ground in extremely thin trading Friday. In over-the-counter trading on the Moscow Interbank Currency Exchange, the ruble ended at 18 to 19 to the dollar, compared with 14.6 to 14.7 to the dollar late Thursday. Volume was anemic and activity on the interbank market was almost nonexistent. On the Moscow stock exchange, the Russian Trading System index fell 4.2% after plunging 10.9% Thursday. The central bank Friday revoked some recently imposed limits on foreign-exchange transactions of Russian importers and exporters. The limits, which required importers and exporters to guarantee prepayments for their transactions, were set Sept. 1, when the central bank's previous management rushed to curtail capital flight from Russia and stop the plunge of the ruble. "The measure on foreign exchange prepayments, which was enforced by the previous management, doesn't exist anymore," said the central bank's spokesman, Leonid Nitkov. With Russian shelves now bereft of essential foreign goods in the wake of the ruble's plunge, the central bank said the revocation of limits on hard-currency transactions is necessary to secure enough supplies of imported food products and medicines. However, the central bank still has other currency controls in place, including a requirement that exporters sell 50% of their hard currency revenues on Russian currency exchanges to prop up the ruble. The central bank is considering raising that requirement to 75% of earnings, the Interfax news agency reported Friday, citing an undisclosed government source. But the mandatory hard currency sales have failed to prevent the ruble from falling drastically in recent sessions. Most of the central bank's management changed earlier this month, after the resignation of Chairman Sergei Dubinin. A new management team, led by Soviet-era central banker Viktor Geraschenko, took over last week, fueling Western-style reformers' fears of a looser monetary policy and skyrocketing inflation. Separately, the central bank Friday lifted its forced administration of the country's largest private retail bank, SBS-Agro. The central bank took over the management of SBS-Agro Sept. 10, in an effort to prevent a massive run at the bank, which had been hit by losses on the Russian and international debt markets.