Moscow, 27 November 1997 (RFE/RL) - Russia's financial position is in serious jeopardy, a Western finance advisor commented, in the wake of the sharp fall in this week's auction of Russian treasury bills.
The weekly auction (yesterday, Nov 26) of 12-month bonds by the Ministry of Finance resulted in the placement of units worth $661 million at a yield of 28 percent. This compares with treasury bill issues in October and earlier months of double that amount.
"This is a huge under-funding," a Moscow market analyst tell RFE/RL, noting that even the jump in interest rates from the October low of 17 percent has proved insufficient to attract investors.
The Russian Central Bank has admitted intervening in the market, selling hard-currency reserves that were estimated at around $22 billion in October. However, even Central Bank purchasing of Russian treasury bills has proved inadequate, and government interest rates are still too low to fund the current budget deficit. This continues to grow, officials say, as tax revenues fall short
"The authorities will have to tighten fiscal policy to increase the influx of taxes to the budget," Central Bank chairman Sergei Dubinin has declared.
President Boris Yeltsin has called an unusual meeting of government ministers to address this and other problems at the Kremlin next week (Monday, Dec 1), but the Russian press has already dismissed this, and Dubinin's claim, as an unrealistic show for public consumption.
Meantime, our correspondent reports, teams of government officials and representatives of Russia's leading commercial banks have been in London, New York, and Washington, seeking emergency lending to stave off still worse news. And, Germany's Chancellor Helmut Kohl will consider the Russian appeal for emergency funding after his planned meeting with Yeltsin this weekend (Sun, Nov 30).
The International Monetary Fund (IMF) suspended disbursement of its more than $10 billion loan to Russia in October, saying the government needs to do more to cut the deficit and increase tax revenues. Russian officials are now telling the IMF, as well as the Clinton Administration, that action is needed to restore investor confidence, and staunch the outflow of private American capital from Russia.
An estimated $5 billion in mostly American portfolio investment has been withdrawn from the Russian stock and securities markets, since the crisis in market confidence started in Asia and moved to Wall Street last month.
Russian commercial banks are believed to have borrowed abroad to finance share purchases, in the expectation of rapid gains in share prices and continuing inflow of American money. Instead, the Moscow share price index has fallen by about 33 percent. International bankers say their Russian bank clients have admitted losses, without saying how much.
A sharp contraction in Russian bank liquidity is a sensitive matter
for the Central Bank and the banks themselves, as rumors swirl of potential insolvencies. Western and Russian bankers decline comment. However, it is known in Moscow's inter-bank lending market that some banks have had their credit lines eliminated.
A significant shift of funds has taken place from the Moscow stock market to the treasury bills market. As share prices fell, and foreign investors and the banks sold to cut their losses, the volume on the share market has fallen to half of what it was in the heady days of early October. Following the interest rate rise, turnover on the treasury bill market reached $4 billion dollars the week ending November 19. This is almost double the average weekly
turnover in October.
Lack of cash has also prompted at least two major banks, Inkombank and Alfa Bank, to withdraw or suspend bids they have lodged for large state-owned stakes in two profitable oil companies, Eastern Oil and Tyumen Oil.
A Western bank consultant in Moscow tells RFE/RL he believes the pressure for higher treasury bill interest rates will continue mounting, and the political problems for the government likewise. "Wage arrears are going up again," he said. "The 1998 budget is already worthless, before it has been passed."