Publication: Monitor Volume: 3 Issue: 223

Amid increasing concern that the turmoil afflicting emerging markets worldwide may undermine the Russian economy, two senior Russian officials traveled to Washington last week for talks with U.S. Treasury, IMF, and World Bank officials about ways of supporting the ruble should it come under increased selling pressure in the coming weeks. The Russian leadership is keen to bolster the credibility of the economy and discourage any perception that it may be too weak to fight off externally-generated pressure. Russian officials have insisted in recent weeks that pressure on the ruble is being fueled not by any weakness of the Russian economy but by uncertainties plaguing global capital markets.

The Russians are said to have maintained that Russia will not need the kind of stabilization fund agreed upon over the weekend by the IMF to rescue the South Korean economy. Instead, they are believed to have urged the IMF to release the latest $700 million tranche of its $10 billion loan to Russia which the IMF suspended in October because of the government’s failure to improve tax collection. Resumption of IMF payments would also unlock more than $1 billion in World Bank disbursements which have been delayed pending IMF approval of the Russian government’s management of the economy.

Russia’s Central Bank intervened strongly last week to support the ruble as foreign investors fled emerging markets. According to Central Bank chairman Sergei Dubinin, foreign investors have removed U.S. $5 billion from Russia’s government debt markets in recent weeks, forcing the Bank to spend over $1 billion of its hard currency reserves to offset demand for dollars and prevent the ruble’s slide from accelerating.

Russian officials fear that, despite the Central Bank’s recent decision to raise interest rates on treasury bills, investors may seek to repatriate billions more in coming weeks and the Central Bank may find itself forced against its will to raise interest rates further. (New York Times, November 27; Wall Street Journal, November 28; Financial Times, November 29) First Deputy Prime Minister Anatoly Chubais told journalists last week of his concern that the outflow shows no sign of slackening. He said the government is working on a package of measures to protect the ruble which will be finalized in about a week. (RTR, November 29)

Yeltsin to Visit Chechnya in January.