Ruble Takes Its Worst Tumble in Four Years

As the value of the Russian ruble plummeted 10% Tuesday--the biggest one-day drop in nearly four years--acting Prime Minister Viktor S. Chernomyrdin hinted he may try to restore stability by forming a coalition government that would include the Communist opposition.

With Russia continuing to reel from its financial crisis, three of its biggest banks sought to avert disaster by announcing they will merge to form the country’s largest private banking conglomerate.

And Tuesday night, Chernomyrdin announced a plan to repay foreign investors by converting high-interest Russian treasury bonds known as GKOs into securities that would be paid back over a longer period--with ever-shrinking rubles and at reduced interest rates.

“The crisis in the country is only beginning,” said Vyacheslav A. Nikonov, a former advisor to President Boris N. Yeltsin. “Obviously, not a single foreign investor in his sound mind will come to Russia after what was done to foreign lenders.”

Some economists said Chernomyrdin’s only hope for resuscitating the economy will be to print more rubles--a move sought by the Communists but one likely to ignite the kind of high inflation that Russia has avoided in the recent past.

“He will have to print more money--there is no doubt about this,” economist Nikolai P. Shmelyov said. “All other resources have been exhausted. The GKO pyramid has collapsed, Russia is not likely to get any more foreign loans, and there is simply no money left in the country itself.”

Chernomyrdin, who served more than five years as prime minister before Yeltsin fired him in March, was called back by the president on Sunday to save the country from economic collapse.

The acting prime minister spent much of Tuesday negotiating with factions of the Duma, the lower house of parliament, which will consider as early as Friday whether to confirm his reappointment.

Emerging from the meetings, the onetime Soviet boss called for a “government of accord,” signaling that he may be willing to include in the Cabinet representatives of the anti-Yeltsin parties that dominate the Duma. Yeltsin has occasionally named Communists to high-level posts in the past, but never enough to pacify his opponents.

While such a maneuver could win Chernomyrdin speedy confirmation--and perhaps enhance his prospects of succeeding Yeltsin as president--some analysts predicted that it will bring the nation’s political strife into the Cabinet.

“This will make a real mess of government policy in Russia, and the lack of coordination in the previous Cabinet will seem like child’s play compared to what the new government will be doing,” said Leonid A. Radzikhovsky, economic commentator for the newspaper Sevodnya. “The Cabinet will be torn by disagreements, irreconcilable conflicts over even trivial matters, and general chaos.”

The plunge in the value of the ruble against the dollar came as Russia’s Central Bank released reserve funds to private banks with the idea of increasing the flow of money and stimulating commerce.

Instead, the banks sought to protect the value of their money by converting the rubles to dollars. The buying spree quickly prompted a slide in the ruble’s worth that was halted only when currency sales were suspended for the day.

“Our hope that the banks would use this money to make payments to their clients or settle accounts with each other did not prove right,” Central Bank spokeswoman Irina Yasina told state-run ORT television. “To be more precise, it proved totally wrong, and this money arrived on the hard-currency market.”

The ruble, which began the day trading at 7.14 to the dollar, ended at 7.86--the worst fall since the day known as Black Tuesday in October 1994. Earlier this month, the ruble had been holding steady at about 6.2 to the dollar.

With many of Russia’s banks in danger of collapse, Uneximbank, Most Bank and Menatep--owned by three of Russia’s biggest tycoons--agreed on a merger that they hope will save them from bankruptcy. Some economists interpreted the move as a sign that at least some of the country’s bankers will start cooperating to help end the economic crisis.

“Our oligarchs now seem to have finally realized that they live on the same planet with their customers and that the difficulties the Russian economy has to cope with affect them too,” Shmelyov said.

In a move closely followed by foreign investors, Chernomyrdin approved the plan to restructure $40 billion in debt--including $11 billion in bonds held by foreign investors. Last week, then-Prime Minister Sergei V. Kiriyenko froze repayment of the debt for 90 days.

The controversial GKO bonds, which carried interest rates of up to 150%, had lured investors to Russia with the promise of quick profits. But eventually, the government ran out of money to pay them back.

Under Chernomyrdin’s plan, bonds scheduled to come due before the end of 1999 will be exchanged for securities with terms of three to five years and bearing interest of no more than 30%.

The White House said that President Clinton telephoned Yeltsin and that the two leaders “reaffirmed” the need for Russia to adopt “a clear, decisive strategy” for dealing with its financial and economic problems.

During the 30-minute call, the two presidents discussed preparations for their summit scheduled for next week in Moscow. Deputy White House Press Secretary Barry Toiv said Clinton agreed to provide a more detailed explanation of the reasons behind the U.S. missile strikes in Sudan and Afghanistan last week.

“The president has agreed that they would discuss it at the summit,” Toiv told reporters.

Although Russia’s economic crisis threatens to dominate the three-day session, U.S. officials say they also want the summit to include sessions on nuclear nonproliferation, continuation of economic sanctions against Iraq and possible responses to intervention by Serbia in its secessionist province of Kosovo.

Times staff writer Art Pine in Edgartown, Mass., contributed to this report.