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Russia: Chubais Returns To Government, For Now

  • Stephanie Baker



Moscow, 18 June 1998 (RFE/RL) -- Amid a deepening financial crisis, President Boris Yeltsin has appointed former economic policy chief Anatoly Chubais as his special envoy in charge of Russia's relations with international lending organizations.

Chubais, who was sacked as first deputy prime minister in March, returns to the government as Russia's financial markets have plunged into turmoil.

A Kremlin spokesman said Chubais would assume the role of a deputy prime minister responsible for negotiations with multilateral financial institutions, such as the International Monetary Fund.

Yeltsin said today, however, that Chubais would remain in government only temporarily to help Russia win what he called "certain support and investments." He said Chubais would remain chief executive of the national electricity company Unified Energy Systems.

Prime Minister Sergei Kiriyenko said Wednesday the government is hoping to tap additional funds from the IMF to help prop up the Central Bank's reserves, which have dwindled since Asia's financial woes hit Russia last October. And he emphasized that: "It will not be a new wasteful credit for consumption."

Kiriyenko declined to comment on the size of the loan being discussed, but other Russian officials have said it could be for as much as $10 billion. An IMF team is due in Moscow next week to discuss the new financial aid package.

Russia is battling one of its most serious financial crises in years, which has sharply increased the government's cost of borrowing to cover budget holes. The economic turmoil has been compounded by poor tax collection and slumping world prices for oil, one of Russia's leading exports.

Reports of Chubais returning to the government came after Kiriyenko met Tuesday with Russia's leading bankers and financial tycoons to discuss ways to stabilize the country's jittery markets. According to Russian news reports, the financiers were pushing for Chubais to coordinate the government's anti-crisis measures.

The government is preparing to announce an anti-crisis plan next week to restore the confidence of investors and further budget cuts could be in the making. The government already is planning to slash spending by 3 percent of gross domestic product.

Kiriyenko acknowledged that the program will be "unpopular." But he said: "The world financial crisis has fallen on fertile ground, namely the crisis of confidence in a system which lives beyond its means."

Although Chubais' appointment was confirmed only after the markets were closed, media reports that Chubais would be brought back into the government sparked a rally on the country's stock market, which rose 8 percent Wednesday.

The Finance Ministry also abruptly canceled its weekly treasury bill auction. The move fueled speculation that the government had found other sources of funds to redeem more than $1 billion in maturing T-bills. The government today launched a major Eurobond for a reported $2 billion, but the exact amount has not been disclosed.

With Chubais back in government, markets are betting that Russia will succeed in getting additional IMF support which investors believe is needed to halt speculation on the ruble.

Chubais has long played a key role in the government's relations with the IMF and World Bank. The current appointment confirmed that this will continue.

Last month Chubais traveled to Washington for "informal" talks with senior officials from the IMF and U.S. administration as financial markets continued to plunge. As he put it: "I happened to have close friendly relations with top officials of financial bodies, such as the IMF and the World Bank."

Analysts agree that Chubais has the political clout and track record to do a deal with the IMF. In the words of Chris Speckhard, an economist at the Russian brokerage Alfa Kapital in Moscow: "He's someone they know and trust. His ties with the final oligarchs also have a big influence on the decision."

But there is also a possibility that putting Chubais in charge of international financial institutions could divert his attention from Unified Energy Systems (UES), which is at the center of a circle of non-payments choking the economy.

As John Paul-Smith, a Russian strategist at Morgan Stanley in London, put it: "The more time Chubais spends on this, the worse it is for UES. Sorting out UES is one of the biggest structural problems facing the government."

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