Russia to Reverse Decision to Freeze Foreign Debt Payments, Official Says

A top official in Russia’s new government said Thursday that the country will reverse its decision to freeze foreign debt payments and is ready to negotiate a new payment plan with international lenders.

“Russia is ready for a dialogue, and in this connection the government would not like foreign partners to take tough measures against us,” said Deputy Prime Minister Alexander N. Shokhin. “We call on banks to refrain from seizing Russian banks’ assets abroad.”

Shokhin’s conciliatory remarks came exactly a month after former Prime Minister Sergei V. Kiriyenko announced that Russia would devalue the ruble and impose a 90-day moratorium on paying foreign debts. The move sent the ruble plummeting and brought down Kiriyenko’s government.

The new prime minister, Yevgeny M. Primakov, took over a week ago and continued to assemble his Cabinet and formulate an economic recovery plan Thursday. But the Russian economy kept on reeling.

The ruble fell to 14.6 to the dollar at the official rate. And the shattered stock market fell 12.16% to hit an all-time low of 51.7 on the Russian Trading System index. The index peaked at more than 570 in October.

Some foreign companies doing business here have laid off as many as 75% of their employees in the past month. Some firms are likely to pull out altogether, said an official of the American Chamber of Commerce in Russia.

“In some ways, the [American] business community feels like it was hit by a neutron bomb and we’ve all been irradiated, which means that in 30 days, 60 days, 90 days, some of us are going to die,” chamber President Scott Blacklin told a news conference. “And the rest of us will recover but will have to lay around and throw up for a while.”

President Boris N. Yeltsin, who has kept a low profile during much of the crisis, briefly appeared before television cameras and said it will take another week to fill the remaining vacancies in the 30-member Cabinet. One key post that is still empty is the minister of finance.

Apparently trying to counter persistent rumors that he is ill, Yeltsin got out of his limousine on the way from the Kremlin to his country estate and visited a store on a busy commercial street.

The president spent about 15 minutes inside talking to customers and clerks about the variety of goods and about prices. He was apparently satisfied on both counts, although the same could not be said for regular shoppers.

“The shelves here are visual aids for a pensioner studying virtual nutrition,” an elderly woman at the store told NTV television later in the day. “There is nothing affordable here, even to many of those who have jobs.”

The government’s decision to try to repay foreigners who invested in government bonds, known as GKOs, is an important step in restoring Russia’s international credibility--and in potentially obtaining more foreign aid.

“The method Russia used in mid-August to try to solve its financial problems does not conform to international practice,” Shokhin said. “However, a return to the situation as it was before Aug. 17 will not be on the agenda.”

While officials hope to negotiate a payment plan and undo some of the damage done by the debt moratorium, plans to solve the government’s fiscal problems by printing more rubles is likely to send the currency plunging further.

A newly appointed Central Bank official said the government will soon print enough rubles to purchase GKOs from domestic banks. He did not indicate how much the government would pay for the bonds, which are now virtually worthless on the open market.

Some economists worry that printing more currency will bring on hyper-inflation and make it even more difficult to pull out of the slump.

Andrei Illarionov, director of the Institute of Economic Analysis and frequent government critic, estimated that the true value of the ruble is more than 20 to the dollar--and that is before the printing presses are turned on.

He charged that the Central Bank manipulated the ruble price during the past week to give Russian banks a favorable rate as they prepared to meet Tuesday’s deadline for making major payments to foreigners. Now that the deadline has passed, the ruble is falling again, he said.