As currency falls, Russians hasten to exchange it, buy goods

October 11, 1994|By Kathy Lally | Kathy Lally,Moscow Bureau of The Sun

MOSCOW -- The ruble, extending a 37-percent slide in its value over the past month, suffered its sharpest one-day loss since January yesterday, leaving many Russians deeply afraid of another round of inflation just as life seemed to be stabilizing here.

In fact, the weakness of the Russian currency -- which rose to more than 3,000 to the dollar for the first time -- has been evident for several days now on the streets of Moscow.

Lines began to form at the end of last week outside the city's numerous foreign exchange offices, which seem to operate on nearly every block. Ordinary people were trading in their rubles for dollars.

They also bought what products they could before the inevitable raising of prices. Gasoline stations were quickly drained of all they could sell.

As many people feared, the cost of gasoline went up as the ruble's value went down. While the ruble fell 6.4 percent yesterday -- to 3,081 on the Moscow Interbank Currency Exchange, down from 2,896 Friday -- gasoline went up 17 percent.

Gasoline, which last week cost 330 rubles per liter, now costs 400. All over Moscow late last night, lines of drivers -- some a half-mile long -- dozed in their cars, hoping they would be able to buy gas at any price.

On Sept. 28, the Central Bank, which has intervened before to bail out the ruble, decided against propping it up. Ever since, the currency has been sliding.

The Central Bank has spent about $2 billion over the past three months to stabilize the ruble, according to Viktor Gerashchenko, chairman of the bank.

Bank officials, suggesting they expect the drop to stop soon, said the market has been adjusting to a surge in the money supply over the summer.

That will be small comfort to the nation's savers, who had been showing confidence in the currency in recent months. Deposits at banks had risen to the equivalent of $7.4 billion last July, from $1.6 billion in July 1993.

Many of the depositors are pensioners who have little idea what else to do with whatever money they have. Younger and savvier people don't save rubles, and their eagerness to snap up dollars has apparently contributed to the ruble's decline.

"I don't have any friends stupid enough to put rubles in the bank," said Yelena Georgevna, a 45-year-old Moscow woman. "Anyone with any sense changes their money into dollars as soon as they can."

This is true from relatively cosmopolitan Moscow to a frozen, forgotten mining town in the middle of Siberia. Dollars are the only readily available hedge against monthly inflation of 7.7 percent.

Over the summer, the currency had been fairly stable, leading many to believe they had seen the worst of inflation. In the summer of 1991, while the Soviet Union was intact, the ruble was held to an artificial 27 to the dollar.

By the end of 1992, as prices were freed in the first wave of post-Soviet reform, the ruble fell to 415 to the dollar. Six months later, it passed the 1,000 mark. But it took a year for it to pass the 2,000 mark, reaching 2,008 to the dollar in July.

Confidence in the currency has deteriorated as the government has worked on its budget over the past few weeks. Despite collecting only 64 trillion rubles in taxes when it expected 125 trillion, there has been no agreement on cutting spending.

The government has been borrowing 7 trillion rubles a month from the Central Bank since July, sending inflation to 7.7 percent a month from 4.6 percent in August. And many financial observers fear the government is preparing a large-scale bailout of money-losing industries to prevent huge unemployment.

Little official alarm has been raised so far. Prime minister Viktor L. Chernomyrdin had predicted in March that the ruble would drop to 3,000 -- but only by the end of the year.

So far, the drop has had little effect on foreign firms, which do business primarily in dollars. Retailers routinely mark their prices in dollars, and consumers can pay for them in rubles at an exchange rate posted daily in the stores.

Lately, the rate has been posted on a simple piece of paper, which can be crumpled up and replaced every morning.

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