Market recovers as Russia raises $1bn
Thursday 04 June 1998
The cash raised from the successful debt issue reduced fears that the Russian government would default on debt payments. It also eased pressure on the rouble.
So confident was the prime minister, Sergei Kiriyenko, that he had managed to survive last week's life-and-death test of his new government that he left for Paris for his first trip overseas. "I am absolutely certain that the situation is under control," he said before his departure.
Confidence is growing that Russia has weathered the worst of the storm, which last week sent shares plunging and saw the Central Bank scrambling to defend the currency, buying up roubles and tripling interest rates to 150 per cent.
Although the Central Bank's reserves have been depleted by its battle for the rouble, it has emphasised that has plenty left to prevent a run on the currency.
The crisis has turned Russia's stock market into the world's worst performer this year, slicing its value in half. This week, however, the market has staged a partial recovery. Stocks rose by 12 per cent on Tuesday, wiping out Monday's 10 per cent drop. Yesterday, Russia's benchmark RTS stock index closed at 209.07, up 8.5 per cent.
Intense speculation about a possible $10bn loan package was the main reason for renewed investor optimism.
Finance officials from the Group of Seven industrialised nations (G7) are to meet in Paris next week to discuss Russia's woes, which have been blamed on a combination of factors, including the Asian crisis, low oil prices and poor tax collection.
Lawrence Summers, deputy treasury secretary, is expected to represent the US at the meeting, and deputy finance ministers are expected to represent Japan. France and the UK are thought likely to send civil servants rather than ministers to the meeting.
Rumours have swept the foreign exchanges that Russia will ask the G7 nations for a rescue package to stabilise the rouble, although Russia's finance minister, Mikhail Zadornov, yesterday announced that it would not be making a formal request to G7 for aid "as a matter of principle".
Earlier this week, Robert Rubin, US Treasury Secretary, said the G7, the IMF and Russia had yet to agree on whether a financial rescue package was necessary.
Financial support is not the only way the G7 could help ease Russia's pain. Verbal support from the seven countries could also encourage the IMF to release its next tranche of aid to Moscow, which is due at the end of June.
Analysts were yesterday warning that Russia's latest debt sale could lead to more difficulties in the future. Eric Kraus, chief strategist at Regent European Securities said: "By raising money in this way they are increasing the amount of refinancing that will be necessary next year."
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