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Russia: Foreign Investors Place Pressure On Ruble

Moscow, 30 January 1998 (RFE/RL) -- Russia's government is under intense pressure from foreign money markets and foreign investors, amid speculation that Central Bank reserves are falling by $1 billion per week, making devaluation of the ruble likely.

Western and Russian finance experts disagree, however, whether the situation reflects genuine vulnerability of the currency - or, whether foreign investors are manipulating the situation to force the government into making concessions on the Rosneft privatization and other asset sales, due over the next few weeks. Rosneft is the largest Russian oil company still controlled by the state.

"There is a serious threat to the ruble," a London market analyst told RFE/RL.

A Russian analyst says he believes there is a concerted effort by American and European investors to extract concessions from Moscow, comparable to the demands the Clinton Administration and other creditors have placed recently on Indonesia, Malaysia, Thailand, and South Korea. "The currency situation in southeast Asia is still not under control," he said. "The nasty wave that is coming from Asia, on its way to Washington, is lapping over Russia."

Boris Jordan, head of the MFK-Renaissance unit of Russia's Uneximbank group, claimed this week there has been a net $2 billion loss of foreign holdings of Russian government securities in January. He also claimed that the Central Bank's reserves have fallen by $3 billion since January 1, and now stands at $15 billion. These claims contradict assurances from the Central Bank and Finance Ministry that they had staunched the outflow of foreign capital by the end of December.

Asked about the reserve level, Bank officials were critical of Jordan's assertions - but refuse to give details.

This week's crisis talk apparently did produce a significant shortfall of investor demand at the Finance Ministry's securities auction Wednesday. The sale of federal loan bonds (OFZ's) was canceled - the first time this has occurred since August, 1995.

International investment bankers say they are skeptical of the government's ability to finance the current budget deficit, and they point to delay of the privatization of Rosneft as a sign of the revenue shortfall to come.

Last month, First Deputy Prime Minister Anatoly Chubais tried to enlist Boris Jordan and several major international banks in an emergency loan of up to $2 billion, secured for repayment out of the Rosneft anticipated sale proceeds. Russian analysts say that foreign investors, who are keen to bid for Rosneft, fear being excluded from the privatization. "The Rosneft sale is a test - not just of the government's revenues this quarter - but, of Chubais's power to deliver the asset to foreign investors," a Moscow analyst tells RFE/RL.

The Duma has also begun moving to prevent Chubais from regaining his power to negotiate state loans with his banking allies. January 21, by a vote of 310-to-one, the Duma approved, on first reading, a measure to set new loan limits, and increase accountability for government borrowings. According to Vladimir Usanov, Duma sponsor of the bill, "the main reason (for the bill) is to require openness in what borrowings are being made and for what purposes. When this will be done in an open way, there'll be much less room for violations." Usanov predicts swift passage through the Duma, but opposition from the Kremlin. International money-market sources acknowledge that the political defeats Chubais has suffered since November are causing uncertainty in the major foreign banks and investment institutions.

The International Monetary Fund (IMF), which monitors the level of Russia's reserves, sends a team back to Moscow next week. At that time, Russian officials are expected to ask for relaxation of the IMF's net-reserve limit. This is the figure the Central Bank and government agree to maintain in currency and gold reserves, after obligations to the IMF are subtracted. And, experts tell RFE/RL that they believe Russia's net-reserve figure might be half the target agreed. They also expect the IMF mission to press for no restriction on foreign investment in the Rosneft privatization.