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Russia: Government Needs Fast Western Assistance

Moscow, 2 June 1998 (RFE/RL) -- Russian President Boris Yeltsin and top officials in his government stand on the verge of disaster and they know it.

The image of calm competence they are trying to project in presidential decrees and government directives is clearly aimed at halting a financial crisis, the worst since 1996, and preventing a debacle.

Yeltsin and his officials in recent days have managed to rally vocal support from the U.S. and German leadership, as well as from international financial institutions.

However, until late yesterday, even endorsements from U.S. President Bill Clinton, German Chancellor Helmut Kohl and the heads of the International Monetary Fund and of the World Bank failed to soothe panic-stricken operators in Russia's financial markets.

The Russian stock market continued falling yesterday, while yields on government bonds rose to as high as 75 percent, exorbitantly increasing the government's cost of borrowing.

According to the Interfax news agency, the stock market seemed to be calming today, and Deputy Prime Minister Boris Nemtsov announced that the markets are responding to the government's actions.

Government and central bank officials have repeated in recent days that they will remain firm in their policy to defend the ruble at any cost. Last week's tripling of a key interest rate to 150 percent had several goals. The most direct was to discourage currency speculation and another was to sustain fiscal stability -- one of the few recognized achievements of Russia's market reform.

At the same time, government officials have spent hours explaining to Western political and economic leaders and Russian and Western investors details of a package of measures aimed at drastically cutting spending and boosting revenues and tax collection. Foreign officials, particularly in the United States, praised the package.

U.S. leaders suggested broad consultation with other industrialized nations, in order to coordinate support measures for Russia. As U.S. Deputy Treasury Secretary Lawrence Summers put it yesterday, "Russia's problem has the potential to become in turn Central Europe's and the world's."

Russian officials, who have denied Russia would need special international aid, admit informal talks are under way.

Boris Fedorov, Russia's new tax service chief, said yesterday that the government has the cash reserves to protect the ruble, but acknowledged that an additional loan of $5 billion from international financial institutions would help stabilize the jittering markets.

Soothing words from international leaders that additional financial support to Russia will materialize if needed, seemed to reassure jittery market operators in part. Today investors and politicians alike are awaiting the result of a major government sale of T-bills, known by Russian acronym GKO, scheduled for tomorrow.

A Western investment banker in Moscow, wishing to remain anonymous, told RFE/RL today that the sale may be crucial for a government that is trying to raise desperately needed cash and, "obtain precious additional breathing space to be used to find less expensive sources of revenue."

The government late yesterday sent a signal of confidence. Prime Minister Kirienko signed a decree for a new auction of the state- owned oil company Rosneft at a lesser price, after an embarrassing failure to obtain bids in the sale last week.