Markets face rough ride as deal collapses

GLOBAL MARKETS face another roller-coaster ride today following last night's dramatic collapse of a political deal in Russia that could have paved the way for economic recovery. Instead, more political turmoil in Russia appears inevitable.

Earlier yesterday Western leaders had given cautious approval to what appeared to be a compromise deal between the Duma, the Russian parliament, and Viktor Chernomyrdin, the acting prime minister. However, the Communist members of the Duma abruptly withdrew their support for the confirmation of Mr Chernomyrdin as prime minister.

Also yesterday, a leading German banker warned America that President Clinton's visit to Moscow this week should not be used as an excuse to argue for favourable terms for US lenders. President Boris Yeltsin is due to host the American President on 1-3 September for talks on the financial crisis.

Martin Kohlhausen, the president of the German banking federation, said he was concerned the US would seek preferential treatment in Russian debt restructuring in the visit. "I don't think this is primarily about providing further money to clean up Russia's finances, but is a race by creditors and investors. The Americans want preferential treatment in debt adjustments," he said.

Mr Kohlhausen said that all Russia's international creditors should be treated equally. Germany is Russia's largest foreign lender with an exposure of over pounds 25bn.

"If there is preferential treatment as a result of political pressure I would not be impressed," said Mr Kohlhausen, also chief executive of Commerzbank. "That would promote the feared lopsided development of the world financial system."

But Mr Clinton's visit may be overshadowed by the political upheavals in Moscow. Western observers and Russian reformers are worried that the Communists in the Duma want to "turn the printing presses back on" and issue extra roubles, risking hyperinflation.

Earlier, when the compromise deal appeared to have been clinched, the Clinton administration said that continued financial support still depended on actual reforms in Russia. Lawrence Summers, the Deputy Treasury Secretary, said yesterday: "What is crucial is not words at this point, but the actions the Russians are able to take at what is a critical juncture for them and their management of the economy."

Mr Summers said the terms of Russia's IMF package would have to be renegotiated before any new IMF loans could be discussed.

Michel Camdessus, the IMF managing director, said on Saturday that Russia would get the next $4.3bn instalment of its $22.6bn bailout if it put economic reforms in place. It will get the money if it is "able to make the homework by a given date in September" and if "all actions needed to restore stability are taken," he declared.

Even before the events last night, analysts were gloomy over the markets' prospects. Gerard Lyons, chief economist at DKB International, said: "Stock markets in the US, UK and Europe have discounted too much good economic news. As the crisis intensifies, they continue to look vulnerable."

There have been continued calls for cuts in interest rates around the world to counter the crisis, but analysts said cuts could still be some way off. "Asset price inflation has been a central fear of central bankers this year; in other words stock markets have been seen as too high," Mr Lyons said. "It is unlikely that a fall in stock markets will trigger rate cuts until declines seem sharp enough to threaten the economy."

The Financial Services Authority and the Bank of England have formed a special committee for daily monitoring of Western banks and their exposure to the Russian crisis.

In Japan the Economic Planning Agency Minister, Taichi Sakaiya, expressed bitterness that Russia had failed to promote a Western-style economy while lawlessness had taken hold. "We hoped Russia would achieve a market-oriented economy, but it didn't. In fact, it is a mafia economy."

One man who still holds out hope for Russia is Domingo Cavallo, the former economic minister of Argentina, who flew to Moscow at the Russians' invitation on Saturday to help. Mr Cavallo is credited with defeating Argentina's hyperinflation.

Mr Cavallo, a Harvard-trained economist and contender in presidential elections next year, told La Nacion newspaper he would have to speak to members of Russia's government before recommending any solutions.

Asked if he would suggest a convertibility plan like the one he introduced in Argentina in 1991, Mr Cavallo said: "For me, it is key to have a solid and trustworthy currency."

ebooksAn unforgettable anthology of contemporary reportage
Mock the tweet: Ukip leader Nigel Farage and comedian Frankie Boyle
peopleIt was a polite exchange of words, as you can imagine
Life and Style
Life and Style
Britons buy more than 30 million handsets each year, keeping them for an average of 18 months
Arts and Entertainment
TV Presenters Ant McPartlin and Dec Donnelly. Winners of the 'Entertainment Programme' award for 'Ant and Dec's Saturday Night Takeaway'
musicAnt and Dec confirmed as hosts of next year's Brit Awards
Arts and Entertainment
Orson Welles made Citizen Kane at 25, and battled with Hollywood film studios thereafter
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
Independent writers remember their Saturday jobs:

Independent writers remember their Saturday jobs

"I have never regarded anything I have done in "the media" as a proper job"
Lyricist Richard Thomas shares his 11-step recipe for creating a hit West End musical

11-step recipe for creating a West End hit

Richard Thomas, the lyricist behind the Jerry Springer and Anna Nicole Smith operas, explains how Bob Dylan, 'Breaking Bad' and even Noam Chomsky inspired his songbook for the new musical 'Made in Dagenham'
Tonke Dragt's The Letter for the King has finally been translated into English ... 50 years on

Buried treasure: The Letter for the King

The coming-of-age tale about a boy and his mission to save a mythical kingdom has sold a million copies since it was written by an eccentric Dutchwoman in 1962. Yet until last year, no one had read it in English
Can instilling a sense of entrepreneurship in pupils have a positive effect on their learning?

The school that means business

Richard Garner heads to Lancashire, where developing the 'dragons' of the future is also helping one community academy to achieve its educational goals
10 best tablets

The world in your pocket: 10 best tablets

They’re thin, they’re light, you can use them for work on the move or keeping entertained
Lutz Pfannenstiel: The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents

Lutz Pfannenstiel interview

The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents
Pete Jenson: Popular Jürgen Klopp can reignite Borussia Dortmund’s season with visit to Bayern Munich

Pete Jenson's a Different League

Popular Klopp can reignite Dortmund’s season with visit to Bayern
John Cantlie video proves that Isis expects victory in Kobani

Cantlie video proves that Isis expects victory in Kobani

The use of the British hostage demonstrates once again the militants' skill and originality in conducting a propaganda war, says Patrick Cockburn
The killer instinct: The man who helps students spot potential murderers

The killer instinct

Phil Chalmers travels the US warning students how to spot possible future murderers, but can his contentious methods really stop the bloodshed?
Clothing the gap: A new exhibition celebrates women who stood apart from the fashion herd

Clothing the gap

A new exhibition celebrates women who stood apart from the fashion herd
Fall of the Berlin Wall: Goodbye to all that - the lost world beyond the Iron Curtain

The Fall of the Berlin Wall

Goodbye to all that - the lost world beyond the Iron Curtain