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Russia: Devaluation Has Only Bought Short Respite

  • Robert Lyle

Washington, 18 August 1998 (RFE/RL) -- Russia goes into the first full day after its new emergency financial measures with one piece of universal advice ringing in its ears -- keep acting fast because you've probably only bought a few weeks breathing space.

To be sure, no one put it in exactly those harsh words. But it is clear from the comments from the international financial institutions and the leading G-7 major industrial nations that devaluing the ruble, controlling short term foreign capital flows, and declaring a 90-day moratorium on repayment of state debt to foreigners, are seen only as a new starting point.

Russia has been suffering a financial crisis of confidence and the package of measures, which Prime Minister Sergei Kirienko described as tough but adequate, only secure a pause in the downward spiral. Whether Moscow can reweave the web of underlying psychological confidence depends in large measure on how quickly and decisively the government now works.

International Monetary Fund (IMF) Managing Director Michel Camdessus said it is now "especially important" for Russian authorities to strengthen the country's fiscal position -- that is, to get the budget in order by dealing with everything from wage arrears to still-lagging tax collections. It is also "essential," he said, that the Duma quickly pass the fiscal measures and reform proposals still awaiting legislative action.

As well, said Camdessus, Russian officials must "spare no effort" to find a cooperative solution to its debt problems in a close dialogue with Russia's creditors. Debt moratorium's are notoriously short-lived solutions in market economies, tending to send investors and bankers fleeing even faster than before.

World Bank officials privately say they are giving Moscow the same advice -- move quickly on a broad front or the crisis of confidence will quickly return.

German Chancellor Helmut Kohl said careful economic policies could help rebuild the confidence Russia needs. His finance minister, Theo Waigel, added the caution that controlling the flow of capital -- even short term -- could prove to be more harmful in the long run. "Under no circumstances must the fundamental liberalization of capital movement be questioned," he said in a statement issued in Bonn. "Russia would hurt itself the most."

U.S. Treasury Secretary Robert Rubin said it is "critically important" that Russian authorities move "quickly to take actions to restore confidence."

He echoed Camdessus' concerns about Russia's creditors, saying Moscow must follow a "careful and cooperative approach."

Rubin added that Russia must also continue with full implementation of the measures in its anti-crisis package which in July won the IMF-led $22.5 billion international rescue package.

Russia received over $5 billion in first drawings from the IMF and the World Bank parts of that package, but won't receive any more until the situation is stabilized and reforms are much further along.

The next IMF tranche, of $6.4 billion was scheduled to be considered for release in September if reforms proceeded on schedule. Camdessus said Monday he hopes the situation will improve enough that the IMF's board will be able to disburse that next drawing close to on time.

The head of the IMF department which covers Russia, John Odling-Smee, assembled a team of top fund experts on the weekend in Moscow to work closely with Russian officials in pushing ahead on the rest of their program.

While Camdessus and Rubin both called for support for, and solidarity with, Russia by the entire international community, their messages were clear that rebuilding the necessary confidence depends almost entirely, for now anyway, on Russia itself.