Russia’s Top Bankers Vow to Help
Russia’s most powerful bankers pledged Tuesday to help pull the country back from the brink of financial ruin, but the depth of the crisis was made ever clearer by President Boris N. Yeltsin’s criticism of the oligarchs for leading a panicked retreat from the collapsing stock market.
Yeltsin summoned 10 of the most influential financial figures to a Kremlin meeting. There it was disclosed that some of the state-run companies in which they have major holdings are among the biggest debtors to the state. Huge energy and transport monopolies owe government coffers at least $1.8 billion in overdue taxes.
Russia’s financial crisis, which has depleted hard-currency reserves and threatened devaluation of the ruble, was brought on by the government’s failure to collect more than a fraction of the tax revenue factored into this year’s budget. Meanwhile, the government has gone beyond planned spending, including massive outlays to pay the interest on loans taken out to make ends meet.
The country’s chief economic gurus had been blaming Asian financial crises for upending Russia’s fragile markets, which recorded a modest rebound Tuesday. But leading reformers said after the Kremlin meeting that it was largely Moscow’s own mismanagement of resources that has pushed the national economy to the edge.
Long-term debt “preconditioned” the latest crisis, but the continuing failure of this government to live within its means made the problems worse, said First Deputy Prime Minister Boris Y. Nemtsov.
Anatoly B. Chubais, until recently Nemtsov’s coequal in the Cabinet and now director of the huge Unified Energy Systems electricity monopoly, also warned the government and financial elite that the faults were mostly internal.
He stunned many analysts with his disclosure that the value of UES stock has plummeted so sharply that its market capitalization is now barely $6 billion, down from $14 billion less than a month ago.
The Russian stock market has fallen 44% in the latest crisis; that shrinkage follows a halving over the previous year.
Yeltsin upbraided the oligarchs for undermining foreign investors’ confidence in Russia by selling their own shares as soon as markets began to wobble. “If you want foreign investors to keep their money here, you have to tell your own investors not to pull out,” Yeltsin told the bankers in televised remarks at the start of the meeting.
Despite the initial scolding and government reminders to those in debt to the tax collectors that they better pay up or face confiscation of assets, the session ended with pledges from the businessmen to pull together with government to weather the financial storm.
“The business circles are now ready to share with the president and the government responsibility for what is going on in the country,” said Vladimir O. Potanin, one of the oligarchs who met with Yeltsin in the Kremlin.
Falling revenue from slumping oil and gas sales and disruptive strikes by state workers demanding overdue wages put new pressure last month on an already teetering economy.
That forced the government to boost short-term interest rates as high as 150% to attract money. The desperate borrowing, in turn, undermined confidence in the ruble, prompting a rush of ruble-investment sell-offs by foreigners who wanted their money in dollars for fear of devaluation.
The crisis has yet to be felt strongly by average Russians, who tend to keep their savings in dollars and stash the cash at home. Jaded by previous bank failures and currency collapses, most households trade their hard currency for rubles only as needed to meet daily expenses.
Central Bank officials and Yeltsin have vowed to resist devaluation at all costs, but the demand for dollars has been so great over the past few weeks that hard-currency reserves have dropped from $24 billion in early May to $14.6 billion now.
Yeltsin won reelection two years ago on the strength of having stabilized the ruble and thereby reined in hyperinflation.
Former Prime Minister Yegor T. Gaidar noted in an interview with the weekly Moscow News that even a slight downward adjustment of the ruble’s value would deal a death blow to stabilization.
“Only half-wits think that a managed devaluation of the ruble is possible here,” he said. “In reality . . . that would guarantee an unmanageable plunge of the ruble, depleting Central Bank reserves, dealing a heavy blow to the banking system and causing total panic.”
Yeltsin plans to deliver an “anti-crisis program” to parliament June 30, said his spokesman, Sergei V. Yastrzhembsky. But interim emergency measures to boost tax collection and cut spending already have been taken, Yastrzhembsky said.
Western countries, including the United States, have pledged to help Russia avoid a catastrophic devaluation of the ruble.
The United States and its major economic allies began preliminary discussions Tuesday about whether to put together a new financial rescue package, with hopes of shaping a draft proposal next Tuesday at a meeting of top officials in Paris.
There was no immediate indication how large a rescue package, if any, the allies might consider.
Times staff writer Art Pine in Washington contributed to this report.