Russia Attempts To Bolster Finances
By Daniel Williams
The request came during a tumultuous week in which the Moscow stock market nose-dived, interest rates soared, striking coal miners tied up the country's rail traffic and the government scrambled to cut spending.
Russian officials were reluctant to discuss their approach to the IMF, apparently for fear of upsetting investors further. "We have been negotiating possible financial support for Russia with both the IMF and the World Bank," Deputy Prime Minister Viktor Khristenko said at a news conference today. Finance Minister Mikhail Zadornov said it was "premature to speak about the size of such a loan or about possible creditors."
The feeler was put out during talks last week between IMF representatives and Russian delegates about release of a $670 million portion of an earlier IMF loan. The installment is part of a $9.2 billion package previously worked out with the organization. The IMF has held up release of the latest portion while evaluating Russia's spending and tax collection policies.
A new low-interest IMF loan would reduce pressure on Russia's budget by helping to retire expensive, short-term domestic loans on which the government currently pays more than 50 percent interest. The high rate is one reason that investors flee stocks for bonds, which ensure them a large return. On Monday, Prime Minister Sergei Kiriyenko hinted at such a strategy. "This is certainly an interesting project," he told a group of pension fund managers.
Since last fall, Russia has suffered a combination of home-grown and international ills. Laggard tax collection has created delays in payments of salaries to state workers and soldiers as well as pensions. High interest rates have eaten into the budget, undermining the government's ability to provide services.
Nervous investors have fled the Russian stock and bond markets partly in fear of an Asian-style meltdown and partly because of the risks of investing in Russia's lawless capitalist jungle.
Abroad, oil and gas prices have fallen, reducing the earnings of Russia's main natural resource exporters -- and their ability to pay tax arrears. A clear symptom of the problems brought on by the oil slump appeared today during a scheduled auction of a 75 percent stake in Rosneft, the last major state-run oil company to be privatized. No one bid for the stake, priced at $2.1 billion, which the government had hoped to use to make up budget shortfalls. Low oil prices made the prize unattractive to bidders, analysts said.
Similar headaches precipitated the March downfall of the government led by Prime Minister Viktor Chernomyrdin. President Boris Yeltsin named his successor, Kiriyenko, to manage Russia's economy to health and stimulate growth. In his first full month in control, Kiriyenko has been buried in an avalanche of adverse economic news.
Last week, the stock market declined 10 percent in a day, the government raised interest rates to 50 percent, and the miners went on strike. The mine shutdown was a particular blow to Kiriyenko; before rising from obscurity to the premiership, he had been in charge of settling disputes in the coal industry.
Today, miners unblocked the last of the railroad tracks they had occupied in northern Russia on the promise that back wages and other benefits will be paid. The problems in the mines are emblematic of Russia's mixed bag of economic problems. Although privately owned, the mines depend on many state-owned customers for income, and many of these are broke and refuse to pay their bills. As a result, the miners get no pay. Mine owners also siphon off money meant for wages, critics contend.
Previous energy ministers have provided stopgap solutions to the problems, but none was able to untangle the intricate spiral of nonpayment by coal customers and mine management alike.
Yeltsin has followed a familiar pattern of blaming marginal forces for Russia's trials. In the mine protests, he said the press and television had blown the problems out of proportion and inspired the miners to obstruct the rail lines.
Even the high-interest bond market has been rocked. Business tycoon Boris Berezovsky, through a newspaper he owns, compared government bonds to a pyramid scheme, saying that investors are simply being paid off in new bonds bearing ever higher interest rates and ever decreasing prospects of maturing.
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