Russia's financial collapse accelerates Acting prime minister seeks more IMF help

August 27, 1998|By Will Englund | Will Englund,SUN FOREIGN STAFF

MOSCOW -- Russia's acting prime minister, Victor S. Chernomyrdin, flew to the Crimea yesterday on a desperate mission to get more money from the International Monetary Fund, as the Central Bank said it had no more resources to back the ruble. Ordinary people lined up outside banks and exchange points on the rain-swept streets of Moscow, hoping to salvage their savings.

With the ruble collapsing and no end in sight, a full-blown run on the banks was under way here. At one bank, depositors had to submit an application to have their names put on a list so that in time they might be granted a withdrawal of their funds -- within strict limits.

Up to now, the lines to withdraw money from banks have been quiet and orderly. But the decorum could be fleeting.

Russia's financial collapse picked up speed yesterday, and Russians and foreigners alike increasingly turned their wrath on the oligarchs who control the country's big banks.

Billions of dollars, critics said, have been siphoned out of the country by the Russian banks as the government furiously spent hard currency over the past month in a futile attempt to support the ruble -- and as those banks stopped payments on their own debts.

Yesterday the ruble fell 40 percent against the German mark.

"It's mismanagement by the Central Bank and outright theft by the Russian banks," said Charles Blitzer, former head of the World Bank office in Moscow, who now works as an investment banker with Donaldson, Lufkin and Jenrette in London.

"It's truly a rape of the country. If I was the Russian people, I'd throw these guys out into deepest Siberia. They have brought on the ruin of the country."

As much as $4.8 billion in IMF funds received in July was transferred from the Central Bank to commercial banks, said Andrei Illarionov, director of the Institute of Economic Analysis.

It was moved, he said, "out of the pockets of the Russian taxpayers and into the pockets of the corresponding banking and financial structures."

In effect, he said, that money ended up subsidizing major Russian banks and did little to prop up the ruble.

"It was not used to save the country from an impending disaster in the shape of bankruptcy," he said. "It was not used to address other national problems. It was used to help concrete financial groups."

Now the country has defaulted on its debt, the Cabinet has been fired by President Boris N. Yeltsin, and the ruble is plummeting.

And as the collapse accelerates, its effects are spreading outward from the world of investors and treasury bill holders and currency dealers -- and from the world of the billionaire oligarchs who control the banks -- into the lives of everyday people.

Inga Shapoval, director of a pet-food warehouse in Moscow, said her company was unable to open for business yesterday.

"The exchange rate is changing so rapidly that we are at a loss," she said. "We don't even know what prices we should sell at."

Nikolai Golovin sells Turkish clothing wholesale. He has 50,000 rubles in cash -- which was worth $8,100 two weeks ago and now is worth $6,000, except that no one is willing to sell him dollars even at that rate.

He is owed much more by retailers, but with inflation looming those retailers are in no hurry to pay. His capital is vanishing.

Dmitry Ryabov sells German construction materials and is in the same boat.

"I'm afraid I will have some difficulties now and I'm sure a lot of problems in the future," he said. "I guess they will strangle small business in the end."

He could be right. It appears that small companies are taking the brunt of the collapse. Most Russians have little or no savings deposited in banks, anyway.

It's people who need to maintain a cash flow, like Ryabov or Golovin, struggling entrepreneurs who have tried to play by the rules, who are hurting.

But that doesn't stop others from worrying. Galina Chernova, a pensioner, went from branch to branch of Most Bank yesterday looking for a way to withdraw her $2,300 in savings.

"I think this panic is being made by someone," she said. "I'm an old person. I'm afraid."

There is worse to come.

The ruble fell so quickly against the dollar yesterday morning that trading was halted. That fed the panic, and traders turned to the German mark. By the end of the day the ruble's exchange rate had dropped 40 percent. The Central Bank said there was nothing more it could do.

In thin trading, the stock market dropped by 14 percent.

Three more commercial banks, virtually insolvent, announced they would pool their now nonexistent resources. The country's 13th largest bank, AB Imperial, was shut down.

A joint anti-crisis commission was supposed to have a plan ready yesterday, but it put off an announcement until today.

Chernomyrdin, the acting prime minister, flew to the Crimea to meet with Michel Camdessus, head of the IMF. Camdessus presumably wanted to question him on the government's ability to stop the slide.

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