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Russia: Chubais Says Financial Market Crisis Over

Moscow, 17 December 1997 (RFE/RL) - Russia's top financial official, First Deputy Prime Minister Anatoly Chubais -- relieved that international financial institutions may soon unlock more than $2 billion -- says Russia has overcome the worst of the global financial crisis that shook the country's financial markets in recent weeks.

In a joint news conference with Finance Minister Mikhail Zadornov in Moscow Monday, Chubais said, "the turn is for the better....and the there are grounds to think that the more dangerous stage is already behind us."

Russia's market suffered severely from the recent Asian stock market crisis that undermined investors' confidence in emerging markets and prompted investor flight from Russia's market. The flight of foreign investment has threatened the modest level of economic stability Russia has achieved so far this year and optimistic forecasts for the future.

But Chubais said that purchases of foreign exchange, which threatened to cause a significant devaluation of the Russian currency, has declined significantly and "last week the central bank was not selling but buying foreign currency on the markets."

An optimist Chubais also said that, with separate loans of more than $2 billion expected from the International Monetary Fund (IMF) and the World Bank, the government is not seeking additional loans from abroad, and will be able to meet the target set by president Boris Yeltsin to pay off, by the end of the year, $1.6 billion in back wages to public sector employees.

However, economic analysts in Moscow remained skeptical that the government would be able to pay all the back wages by January 1, because of continued revenue shortfalls. Observers indicate that the payment of back wages is essential for Chubais' own future tenure in government. Chubais' standing was badly damaged in a scandal last month over a high royalty payment for a book on Russian privatization and Russian observers say Yeltsin may soon sacrifice Chubais. On November 20, after the book scandal erupted, Zadornov replaced Chubais as Finance Minister.

The source of Chubais' optimism Monday was a decision taken by an IMF review team in Moscow last week. The team issued a statement saying it will recommend the release of a $700 million installment of a three-year, $10 billion loan.

In the first nine months of the year the Russian government collected only 66 percent of projected revenues. IMF officials in Washington told RFE/RL that the board may consider the tranche as early as the first week in January.

The IMF froze loan disbursement in October, because of poor tax collection, and because of the government's failure to get the tax system reformed. Last week, the IMF indicated it was encouraged by Russia's effort to clean up its finances and said Russian authorities have "clearly confronted" their problems on tax collection and budget spending.

IMF officials added that Russia has good economic prospects for 1998, "provided that the fiscal and monetary policies agreed during the review are fully applied on a sustained basis." A similar statement was made by the Organization for Economic Development and Cooperation (OECD), which last week predicted a gross domestic product growth of 0.5 percent. Chubais said that, despite the financial crisis, Russia still may meet a government target of two-percent economic growth for 1998.

Zadornov said during the press conference that tax collection improved in November and December. The selling off of part of the state-owned Eastern Oil Company for $800 million also boosted revenues.

The sell off took place despite the recent unfavorable conditions on the stock market, and Chubais said about 20 percent of the money that was withdrawn from the treasury-bill market last month is now being re-invested in Russia. However, analysts say world markets are not yet steady, and Russia remains vulnerable, since it is not reaching the revenue targets for 1997.

Chubais and Zadornov said they were encouraged by the fact that, in addition to the IMF loan, prospects are good for two World Bank loans that the bank's board should examine for final approval this week. The two loans, one a general structure-adjustment credit, and the second to push reform in the coal industry, would total about $1.6 billion, and World Bank officials have said their release should take place within hours after the final approval.

Russian observers have said that these positive developments have allowed the Russian government to put off last week negotiations with four western banks for a $2 billion loan.

However, the optimistic picture on which Russian financial officials and international financial institutions have worked in the last weeks is mitigated by a decision of Russia's State Duma, which last week refused to approve a government proposal to increase the government's foreign-borrowing limit.

Interfax news agency also says the State Duma Council yesterday approved a government request to postpone the second reading of the 1998 budget from Thursday to next week. Duma Budget Committee Acting Chairman Aleksandr Zhukov said deputies need more time to consider government-backed amendments on planned 1998 expenditures.