Time To Panic?
Nobody needed to read George Bush's lips when he visited Russia recently as the guest of Goldman Sachs to mark the opening of the U.S. investment bank's Moscow outpost. Bush declared his faith in 'the power of freedom' and of free markets. 'I am optimistic,' he proclaimed. 'I believe Russia is going to thrive. 'Bush may yet be proved right. But coming as the country's stock market hit a new record low and interest rates leapt skyward, the former President's speech was ill-timed. For anyone who has invested in Russia, this is the summer of sleepless nights as the dreaded word deval’vatsiya--Russian for devaluation— makes an unwelcome comeback. 'It's taboo to say it,' says one prominent Russian banker, 'but this threat hangs over us like a nightmare.' Last week, Finance Minister Mikhail Zadornov declared devaluation unavoidable unless tax collection improves 'by a third' in the coming months. With billions of dollars in unpaid taxes, the government has launched yet another desperate crackdown on tax evaders, even freezing the assets of the country' s top debtor, gas giant Gazprom which owes some $ 2.5 billion. The showdown was dramatic, with the tax police storming Gazprom's Moscow skyscraper and salivating over its vast collection of yachts, planes and holiday villas. But within hours, the confrontation was over. On Friday, Gazprom's CEO Rem Vyakhirev won a private audience with President Boris Yeltsin, where he defused attempts to rip up the agreement granting him control of 35 % of the state's 40% stake in Gazprom and promised, in due time, to pay off the debt.
But as every sentient observer knows, the clock is ticking fast. 'When treasury bill rates rise to 80 %, it means we' re in a pre-collapse state,' says Vladimir Potanin, so-called oligarch and founder of Unexim Bank, one of Russia's largest. 'It's logical what could come next: devaluation, the crash of the banking system, huge' lines of people trying to get their money out, unpaid wages and heightened social tension.' Everybody agrees that a devaluation would devastate Russia as it struggles to retain its fragile financial credibility earned over six years of haphazard reform. Particularly hard hit would be Russia' s banking system, which has debts of at least $ ,200 billion and dangerously few assets. What assets the banks do have could be wiped out thanks to their exposure to so-called 'dollar forward contracts' signed with Western banks. 'If there' s a devaluation,' says Potanin, 'it' s clear that there is this massive amount of future obligations that will have to be paid off, and of course the method will be by defaulting.'
Little wonder then that the crisis has reduced Russia's financial elite, once a pride of chest-beating fat cats, to a threatened species screeching about the coming apocalypse. Their counterparts in the political arena are no less panicked. On June 23, Yeltsin warned his opponents in parliament that if an austerity package was not passed before they recessed on July 16, he would resort to 'other means'--a hint that he would rule by decree. Yet last week, the Russian President informed his subjects and stunned international observers: 'We have no crisis.' Yeltsin may be the only person in Russia who believes that, as devaluation rumors hit fever pitch. 'This week,' predicts a top financial journalist, who boasts close ties to the Central Bank. Even as they brace for the coming storm, many are looking to the International Monetary Fund to save the day. After twice delaying it, on June 25 the IMF, citing its faith in the cabinet of Prime Minister Sergei Kiriyenko, released a $ 670 million tranche of a previous $ 9.2 billion credit. But Russia's chances for a world-class bailout--the $ 10-15 billion that Anatoli Chubais, Yeltsin's envoy to the IMF talks, deems the bare minimum Russia needs to escape catastrophe--look slim.
In the meantime,
A．Y
B．N
C．NG