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Russia: Yeltsin's Cold Sends Chill Into Russian Markets

Moscow, 13 March 1989 (RFE/RL) -- News that President Boris Yeltsin has developed an acute respiratory infection today rattled Russia's markets, still reeling from the decision of a major credit rating agency to downgrade its assessment of Russia's economy.

The Kremlin announced today that 67-year-old Yeltsin, who has a history of heart trouble, canceled all of his meetings and was being treated for a cold and a sore throat.

Yeltsin, who underwent heart surgery in 1996, was reported to be resting at his Gorky-9 residence outside Moscow. Although official reports indicated that Yeltsin's illness was not serious, the Kremlin has a history of not providing complete information on the president's health.

The news, however, caused Russia's fledgling stock market to immediately drop, despite a decision by the Central Bank to cut interest rates to 30 percent from 36 percent due to improving market conditions. His illness also overshadowed progress on getting Russia's 1998 budget signed into law.

The Federation Council, Russia's upper house of parliament, yesterday passed the 1998 budget, sending it on to Yeltsin for signing.

But Yeltsin's illness added to investor concerns raised after the Moody's Investors Service announced Wednesday it was downgrading Russia's credit rating. A downgrade signals that Russian bonds and its overall market have grown riskier. The move could make it more difficult for the government to borrow on international markets to fund the budget, still heavily dependent outside financing in light of weak tax collection.

Moody's announced Wednesday that Russia remained vulnerable to shock waves from Asia and needed to take tougher measures to clean up its finances.

Russian officials yesterday brushed off Moody's negative assessment of the country's economy, saying Russia remained on track.

Yeltsin, during a meeting with his top economic strategist Anatoly Chubais in the Kremlin yesterday, said the decision was not, in his words, "a catastrophe." He said Asia's financial crisis "has had practically no effect on us."

But Russia's markets have been hit hard by the effects of Asia's financial crisis, which has jacked up interest rates and pushed down share prices. The markets have begun to recover in recent weeks, however, as foreign investors regain confidence.

Chubais also downplayed Moody's decision yesterday, saying the agency was trying to make up for its failure to foresee the crisis simmering in Asia. In his words: "They have overlooked the Asian crisis and now are trying to compensate for this."

Finance Minister Mikhail Zadornov also dismissed the ratings announcement, saying Russia is pressing ahead with plans to launch two Eurobonds in German marks and Italian lira at the end of the month.

Russia, which is planning to raise $3.4 billion in Eurobonds this year, has not tapped international markets for borrowing purposes since the financial crisis began last October. The bonds are crucial for the government to plug budget holes and prevent a build-up in wage arrears (Zadornov said yesterday that tax collection was up, helped by a new presidential decree banning the use of non-cash payments, such as debt cancellation, for tax collection. He said the new rule had helped the government boost collection of taxes in cash by 30 percent since the beginning of 1998 compared to the same period last year.

Zadornov told a news conference yesterday that Russia has overcome the worst of the market crisis, predicting foreign investment would take off in April.

The finance minister, appointed to replace Chubais late last year, has said that Russia's market crisis would set back economic growth by six months. But he retracted that warning yesterday and said Russia's economy would grow by 1.5 percent in the first quarter of 1998 compared to the same period last year.

Zadornov and Chubais both said previous concerns about the stability of Russia's currency, the ruble, were no longer an issue now that markets had recovered. An outflow of funds from the Russian market in recent months had put pressure on the ruble to devalue.

But in the words of Zadornov: "All talk of a ruble devaluation is now behind us."