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Economy: Global Financial Turmoil Impacts Russia

Washington, 13 August 1998 (RFE/RL) - Experts and officials from the International Monetary Fund (IMF) and the G-7 group of major industrial nations are watching the situation with Russia's economy closely, hoping that a difficult situation is not made worse by the turmoil in markets around the world.

Officially, the IMF, the United States, and the other G-7 countries -- Great Britain, Germany, France, Japan, Italy and Canada -- are saying they believe that with strong forward movement on the reforms Moscow agreed to in the recent international rescue package, Russia will come through.

But privately, there is concern that despite the $22.5 billion rescue package and the country's best efforts, the global financial turmoil could cause too many waves for Russia's still-fragile market-based boat.

IMF and World Bank officials, who made loan pay-outs to Russia of over $5.1 billion in the last two weeks, are working closely with Russia's Central Bank and Finance Ministry to see that the funds are used to best advantage.

That is why the central bank is limiting the amount of foreign currencies domestic banks may buy. It is also why Russian officials said that some of the early IMF money is being used to retire some debt now coming due and to cover current budget deficits. It is all part of what the IMF and the World Bank intended with their money, primarily to support the ruble.

U.S. Treasury Undersecretary for International Affairs, David Lipton, is in Moscow for what is described as previously scheduled consultations. But sources in Washington point out that this is Lipton's second trip to the Russian capital in a month and the assumption is that he is serving as the G-7's point man.

In Washington, President Bill Clinton focused on the Russian situation in a special meeting he called of his top national security and economic aides to review the global financial situation.

White House National Security spokesman P.J. Crowley said Clinton centered the discussion on Russia because he is due to meet with Russian President Boris Yeltsin in just under two weeks.

Crowley said Clinton and his advisors are "primarily concerned" about the status of economic and structural reforms in Russia. He said the President has "complete confidence" that Yeltsin and Prime Minister Sergei Kiriyenko have the know-how to carry out the needed reforms.

White House and Treasury officials refuse to say anything about Lipton's discussions or specific American concerns. One major worry is the refusal of the leadership of the Duma to call a special session this month to take up the parts of the government's anti-crisis package which were not approved before the IMF-led package was finalized.

The measures themselves were implemented through presidential decree, but U.S. officials are concerned about the psychological impact -- that the refusal will merely add another worry for investors who, experiencing uncertainty and turmoil in markets around the world, are pulling back from all investment seen as risky. The fall in Russian stock prices in recent days is just another indication that investment money is going out of -- not into -- Russian equity markets and government securities.

Despite repeated assurances from Russian officials that no devaluation of the ruble is planned, investors in other parts of the world are concerned that in the global turmoil, the ruble could be forced down and that would make their investments in rubles worth less in dollars or deutsche marks.

Those investors are also feeling challenged by the decline in stock prices in all the major exchanges in recent days. While many are busily taking advantage of the lower prices to buy certain stocks -- including those in Russia -- such downward movements prompt many more investors to shift their funds to the most stable and risk-free of investments, such as U.S. treasury instruments.

There is equal concern in Washington over the future of the Japanese yen and what that could do to Russia. Experts, such as the Institute for International Economics director C. Fred Bergsten, say that if the yen were to "free-fall" in value against the dollar, it "could destabilize financial markets everywhere, including the U.S., and of course Russia."

The value of the yen has fallen to very low levels against the dollar in recent days and Japanese finance officials have hinted privately that they may intervene in currency markets to prop it up.

U.S. Treasury Secretary Robert Rubin refuses to even hint if there might be a coordinated Washington-Tokyo intervention to push up the yen. He has said that over time, exchange rates reflect the fundamentals of economies.