RUSSIA HIKES INTEREST RATES TO DEFEND RUBLE.

The Russian government and Central Bank have announced new moves aimed at protecting the ruble against the speculation that has so disrupted other emerging markets in recent months. The moves were announced yesterday after First Deputy Prime Minister and Finance Minister Anatoly Chubais held a mini-summit of senior finance officials over the weekend. That meeting followed the IMF’s announcement that it was withholding the latest quarterly tranche of its $10 billion loan because of Russia’s poor tax collection record. (St. Petersburg Times, November 10-16)

The new moves include raising interest rates and changing the way in which the exchange rate is set. The Central Bank announced yesterday that it was raising its refinancing rate from 21 to 28 percent, effective today. Also yesterday, the Finance Ministry and Central Bank issued a joint statement announcing that, as of the beginning of next year, Russia will abandon the gradually depreciating "ruble corridor" it has used to date and move instead to a more flexible "ruble band." This will allow the ruble to fluctuate within 15 percent either side of a set rate — 6.1 redenominated rubles to $1 in 1998 and 6.2 in 1999. (One new ruble will equal 1,000 old rubles as of January 1, 1998.) The new policy means the ruble will be free to range between 5.25 and 7.15 rubles to the dollar. The aim is to signal support for the currency while at the same time protecting it against what Chubais yesterday described as "unfavorable phenomena in world financial markets." (NTV, November 10; Financial Times, November 11)

Fears that the hike in interest rates would discourage investment were heightened yesterday when Russian share prices dropped by more than 8 percent. But Stanley Fischer, deputy managing director of the IMF who was in Moscow for a one-day official visit, expressed approval of the moves, saying volatility in Russian markets was provoked not by internal economic weakness but by international market turmoil. Fischer expressed general approval of the economic course of the Russian government, saying that only on the tax collection front is there urgent need for stronger and more effective action. Chubais said yesterday that tougher measures on tax collection will be announced shortly. (NTV, November 10; Financial Times, November 11)

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