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Russia: Crisis Wipes Out People's Savings

Moscow, 27 August 1998 (RFE/RL) -- "I just cannot believe this nightmare is true," says Valentina Antonova, a retired chemical analyst, standing in a 60-people queue at Moscow's Alfabank, in downtown Tverskaya street.

For the second day in a row Antonova, accompanied by her husband, Yuri, a retired nuclear engineer, has been unsuccessfully trying to withdraw her money, deposited at two Russian banks, commercial Alfa and state-controlled Sberbank. She intends to spend it as quickly as she can, in fear of inflation.

The Russian public is desperate to get rid of rubles. During the last few days, the value of the ruble fell by about 20 or more percent to the dollar. Yesterday, in one day, the ruble lost more than 40 percent to the German mark. Exchange rates are growing by the hour and in some cases have already reached the 12 rubles to a dollar. An early round of currency trading on Moscow exchange was halted today as the financial institution appeared to lose control over a chaotic situation. It is unclear when ruble trade will resume.

There is a growing sense of panic in the Russian capital, as people want to get rid of rubles, while the prices are already rising rapidly.

"The only period like this I can recall is the one following the breakup of the Soviet Union, when we, like many others, lost our life savings of 14,000 Soviet rubles in the inflation of 1991-92," says Antonova.

Antonova's husband Yuri, 65, says that the family calculated in 1991 its savings to be worth some 3 thousand dollars at the black market rate, but inflation, reaching 1000 percent, wiped out everything. "We were stupid then," he says, "we did not believe our children, who advised us to buy goods that could be sold later, and the tragic thing is that we have been stupid again this time."

Almost in a whisper, his wife explains that last year the couple sold their country dacha. "Against the will of our children," she says, "we converted the dollars we obtained in the deal into rubles. We don't travel abroad, the ruble was stable, and we figured that nothing bad would happen. For the first time in years, we were feeling well off, and now ..."

"The worst thing is that our children, both computer programmers, cannot help us. Their employers, private entrepreneurs, have delayed the payment of wages because of the crisis," says Yuri. "Our daughter," he says, "has two kids and no savings, she has to pay her rent in dollars and she does not know what to do next."

"This is why we spend all our time trying to withdraw rubles from our account at Sberbank, and we try to convert the ruble account we have at Alfa into a dollar account" concludes Antonova, "so far we haven't had much luck. The next weeks will be terribly hard for our family."

About half or Russians' private savings, estimated to be worth about $50 billion, are deposited in banks, the rest apparently kept at home. Some 20 percent of saving accounts are believed to be held in commercial banks, while the remainder is held in accounts at the government-controlled Sberbank.

Most banks, including Sberbank, have established strict limits for ruble withdrawals. Russian media reported yesterday that the maximum level was 2000 rubles per day at Sberbank. Withdrawing dollars is virtually impossible. Some of the major commercial banks refuse clients' requests to convert their ruble accounts into dollar ones.

The Central Bank's spokeswoman, Irina Yasina, said today that the bank "does not consider possible to sell its currency reserves and balance the market, given the big demand for hard currency and the reluctance of commercial banks to sell it to clients."

As of today the Central Bank's reserves were estimated amount to a little more than $13 billion, mostly in gold and diamonds. Western financial analysts in Moscow estimate that last week the Central bank spent more than $2 billion defending the ruble.

Yesterday, Anatoly Chubais, Russia's special liaison to international financial institutions, warned that Russia's finances are "at the most dangerous stage since 1991." Today, Krasnoyarsk governor Aleksandr Lebed, who is to meet with Prime-Minister designate Viktor Chernomyrdin, told Interfax that "the country is flying toward a disaster."

Russia's equity market saw share prices dropping again today, in a very slow trading. Investors have reacted negatively to the government's plan to restructure the debt of more than $33 billion of short-term treasury bills.

According to the plan, investors holding T-bills maturing within three years or less will receive 5 percent of the bonds' value in cash and the opportunity to trade them for three new issues of Russian securities, due to mature in three to five years. In another option, investors may swap their ruble-denominated bonds for securities denominated in dollars, paying a lower annual interest rate of 5 percent and maturing in 2006.

A Western investor wishing to remain unnamed told RFE/RL that this meant that the new T-bills will be worth no more than 25-30 percent of the original worth. He said that his company "lost almost $100 million in the restructuring" and others, including financier George Soros and such influential banks as First Boston-Credit Suisse lost even more. "Investors' trust in Russia will not come back for a long, long time," he said.

The communist party leaders in the State Duma are said to have been urging the government to start printing money to pay government budget obligations and bail out troubled banks. Economists warn that this would lead to hyper inflation.

The possibility of printing money does not thrill the people in Moscow bank queues. "Look at the prices of good in the shops, they are already up by at least 10 percent since last week, inflation will only make things worse and will not solve the problem," said Marina Larina, a secretary in a law firm. "Every morning I stand up and hope this is just a nightmare," she says, "I want my life back as it was last year."