Washington, 5 October 1998 (RFE/RL) -- The chairman of Dresdner Bank, German's second largest commercial bank, says its time to stop being excessively dogmatic about how Russia deals with its financial crisis.
Bernard Walter says the west prefers that Moscow use market-oriented solutions to try to work its way out of its financial collapse, but that it is more important "not to isolate Russia now with excessive insistence on dogmatic purity."
Speaking with a group of international financial journalists in Washington Sunday, Walter said that while the economic repercussions for the West -- and especially Russia's Western European neighbors -- are unfortunate, the greater concern has to be for the social and political stability of Russia.
"We need to be pragmatic," said Walter. If Moscow feels compelled to employ some money printing, some price controls, and some currency management for a short time, it just might give the country some breathing room to tackle the more basic structural reforms that must be dealt with for the long term.
Russian officials have denied they intend to impose draconian restrictions on foreign currencies, but have hinted at printing more rubles to cover wage and other arrears and creating new government credits to cover budget short-falls.
The International Monetary Fund (IMF) and the G-7 group of major industrial nations have strongly warned Moscow against using any of these measures. The G-7 finance ministers and central bank governors, after meeting with senior Russian financial officials on Saturday in Washington, said that to print more money or create new credits would only reignite inflation, cut desperately needed tax collections, and overall make the crisis deeper, not better.
The Dresdner chairman doesn't disagree, but says so long as the steps are short term, it might be better to compromise.
German banks are generally believed to have the heaviest exposure to Russian debt, which has been subject to a moratorium and forced rescheduling. Dresdner says it has $7.8 billion of that exposure. However, says Walter, a large chunk of what Dresdner holds is former Soviet debt, major parts of which are covered by insurance. Much of the newer Russian debt is covered by oil and gas deliveries to the European Union.
Walter did not reject another rescheduling of Russia's debt, so long as it is done in honest negotiation with commercial lenders in the so-called London Club and with official lenders in the Paris Club. Second or third reschedulings are not all that unusual, he said, adding only that Russia must "do its homework first" before coming to the negotiating table.
As to Russia's searching for another large financial assistance package, however, Walter agrees completely with IMF and G-7 officials who say no new money until an agreed reform plan is firmly in place.
Under present circumstances, the Dresdner chairman says, it would be very difficult to establish conditions acceptable to both lenders and borrower. Besides, he says, Russia now has ten times more U.S. dollars in circulation than rubles and that won't change until "people will be willing to take their dollars out of their pillows or safes and take them to the bank again." Only when confidence in the ruble is restored among the people will the ruble again be able to play a role in Russia, he said. "Right now it doesn't," he says.
According to Russian Central Bank figures, there is at least $150 billion in U.S. currency circulating in Russia.