Publication: Monitor Volume: 5 Issue: 129

Prime Minister Sergei Stepashin gave an upbeat assessment of Russia’s economic future in a July 3 speech to the Federation Council, the upper chamber of parliament. The premier said that government revenues were increasing, that the International Monetary Fund would agree to grant Russia a new credit worth more than US$4 billion, and that the government was “maintaining the tendency of the stability of the ruble” (Russian agencies, July 3).

Last week, Russia’s Central Bank–under pressure to meet the International Monetary Fund’s conditions for receiving the new loan–ended the practice of holding a special session on the Moscow Interbank Currency Exchange, at which exporters had to sell up to 75 percent of their hard currency earnings to the bank. The practice essentially created two exchange rates for the ruble, which violated the IMF’s charter. Despite the fact that the Central Bank has now given up this currency control, the ruble has not dropped precipitously. Indeed, Stepashin said in his Saturday address that the ruble’s stability had “defied the prognoses of the pessimists” (Russian agencies, July 3). Central Bank head Viktor Gerashchenko recently said that the bank will be able maintain the ruble’s value at 24-25 to the dollar.

However the ruble fell to 24.29 to the dollar on July 2, breaking an upward trend, after the Central Bank removed a prohibition on foreign banks buying hard currency with rubles from their correspondent Central Bank accounts. The same day, the text of the agreement between Russia and the IMF appeared in the Russian press. The agreement commits Russia, among other things, to let the ruble trade more or less freely (Kommersant, July 2). Some economists have warned that these conditions could spark another devaluation of the ruble, which has already lost three-quarters of its value since last August’s financial crisis (Moscow Times, July 3).

On July 3, Konstantin Borovoy, a State Duma deputy and leader of the Party of Economic Freedom, warned that the Russian economy could be hit by another crisis within a week. Borovoy warned that Gerashchenko’s attempts to prop up the ruble artificially were on the verge of failing, and that Russians may start dumping rubles, sparking an uncontrolled fall of the currency. As a result, he said, the ruble could fall to 32-35 to the dollar–or even lower. The basic problem, according to Borovoy, is that Russia has “neither a market economy nor state regulations, but something in between” (Russian agencies, July 3). State Duma deputy and former Economics Minister Aleksandr Shokhin was quoted today as saying that Russia may soon face the choice of either defaulting on its post-Soviet debt or devaluing the ruble. The problem, according to Shokhin, could reach critical mass in September-October of this year (Vremya-MN, July 5).

The ruble fell again yesterday, forcing the Central Bank to intervene to prop it up. The official exchange rate closed at 24.47 rubles to the dollar (Moscow Times, July 6).