Russia and IMF in crisis meeting

RUSSIA'S ACTING prime minister, Viktor Chernomyrdin, unexpectedly flew out of Moscow last night for emergency talks with the International Monetary Fund at the height of an economic crisis which saw the rouble nosedive.

The currency plunged by 40 per cent against the Deutschmark on Moscow's main currency exchange after the Central Bank voided dollar trading and refused to set a dollar rate for the day.

Concern about the damage being wrought by Russia's financial crisis to the health of the Western banking system mounted yesterday after Credit Suisse First Boston, the Wall Street investment bank, admitted it had lost at least $254m (pounds 155m) in Russia since its half-year ended on 30 June.

The admission, less than a fortnight before its parent Credit Suisse was set to announce half-year results, came after rumours that Russia had defaulted on a bond payment due yesterday, sparking fears of a wholesale default.

Reports that other big banks had sustained serious losses as a result of the $40bn debt restructuring announced on Tuesday night sent bank shares tumbling worldwide.

The IMF said the purpose of Mr Chernomyrdin's meeting in the Crimea with Michel Camdessus, the IMF's managing director, was "to discuss recent developments in Russia and their impact on the region, particularly the Ukraine".

Taking part as well are the president of Ukraine, Leonid Kuchma, and of Belarus, Alexander Lukashenko, both of whose countries are in dire economic straits. Ukraine is seeking $2.2bn from the IMF's already over- stretched coffers.

The talks will have focused not only on how to salvage the rouble, a battle that appears hopeless after the failure of a $22.6bn rescue package supervised by the IMF, but also the international reaction to Russia's debt rescheduling plan, announced on Tuesday.

Moscow's prestige department store, GUM, which faces the Kremlin across Red Square, saw half of its internal stores close as proprietors hurried to increase prices.

Yesterday there were again long queues at banks as Russians sought to sell roubles. Some Russians have simply taken to the streets in search of people to buy their roubles.

With the crisis in Moscow deepening, stock markets around the world were again on the slide. The FTSE closed down 109 points at 5,545.4, while in New York the Dow closed down 79.3 at 8,523.25. Equity markets in Europe and Asia were also showing big falls.

Particularly badly hit were some of the big US banks known to have been major players in the Russian debt market. Much of that debt is now virtually worthless following Tuesday's restructuring of the $40bn short-term government debt.

On Wall Street the biggest fallers included Chase Manhattan, Citicorp and Lehman who are all known to have been active in trading in Russian short-term debt.

Traders also said that Goldman Sachs, which earlier this week filed for a $30bn listing, was rumoured to have sustained big losses in Russia, as has Salomon Smith Barney.

Goldman said last night that its exposure was absolutely minimal and pointed out that the bank, which three weeks ago handled a first attempt at restructuring the GKO market, had had a number of successful mandates out there.

"It is not surprising that competitors are seeking to undermine our success," said a Goldman spokesman.

The gloom in the banking sector was also compounded by the decision by the debt rating agency Standard & Poor's to strip Deutsche Bank of its coveted Triple A status.

The decision reflected broader concerns about the bank's business mix and the failure to make a go of its attempts to build a global investment bank.

However, these subtleties were lost on the markets, which remain very nervous about the prospects for Russia. "There are a lot of rumours going around at the moment," said one trader. "The numbers go up and down like a yo-yo."

The Credit Suisse statement, issued in Zurich yesterday, said the bank would still announce a half-year profit of $754m for CSFB when it publishes its figures for the first six months on 9 September.

However, it pointed that since then unaudited net profit had fallen to $500m for the year to date. John Leonard, analyst at Salomon Smith Barney, said the figures implied that CSFB, one of the biggest players in the Russian debt market, had probably lost around $350m in the latest debacle.

Further evidence of the mood of crisis came from President Yeltsin, who spent the day holed up in his country dacha after seeing his position weakened, not least because he has bowed to pressure from business oligarchs to restore a premier whom he sacked in March.

Last night - ever careful to keep the security services on his side - he reappointed the director of the Federal Security Services, Vladimir Putin, and beefed up the senior ranks.

News Analysis, page 15