SOROS URGES RUSSIA TO DEVALUE RUBLE.

Billionaire financier and philanthropist George Soros has called for a devaluation of the Russian ruble and the establishment of a currency board to peg the ruble to the dollar or the euro. Soros warns in a letter published in the Financial Times today that turmoil in Russia’s financial markets has reached “a terminal phase.” He says the only way for Russia to overcome the crisis is to establish a G-7 backed, US$50 billion currency board. This would be set up after a “modest” devaluation of between 15 to 25 percent below the current exchange rate, reflecting the fall in world oil prices. Recognizing that devaluation would have serious consequences both for Russian banks and for those institutions which have borrowed in dollars, Soros insists that there should be “no bail-out” of the banking system. “The sounder financial institutions would survive,” he writes. (Financial Times, August 13)

In remarks reported before publication of Soros’ letter, Finance Minister Mikhail Zadornov yesterday rejected the idea of devaluation. Earlier in the week, there had been reports that the Finance Ministry had come around to the idea and that the Central Bank was the one resisting. (Reuter, August 13) Zadornov also announced yesterday that the government had secured IMF agreement to spend US$1 billion of the US$4.8 billion support loan it has already received from the IMF–initially earmarked only to bolster Central Bank reserves–to pay off domestic debts.

Central Bank Deputy Chief Sergei Aleksashenko told Reuters that some of Russia’s banks are in trouble and failing to make loan repayments to each other. “There is a liquidity crisis on the interbank market. In the last two weeks, banks have been actively buying hard currency and have exhausted their reserves,” Aleksashenko was quoted as saying. (Reuters, August 13) He denied that there was any threat of an overall banking sector collapse, but announced that, as of today, banks will face restrictions on the amount of foreign currency they will allowed to purchase. (ORT, August 12)

DUMA REFUSES TO BE RUSHED.