Russia spinning into havoc
Russia's financial crisis intensified yesterday as German Chancellor Helmut Kohl said he would hold urgent discussions on the turmoil with United States President Bill Clinton, British Prime Minister Tony Blair and French President Jacques Chirac.
Amid increasing concern that Russian President Boris Yeltsin had begun to lose control over the country and the economy, financial markets in Russia fell into a tailspin.
Early indications that the rouble was headed for another dramatic fall, following a 40 per cent dive against the deutschemark on Wednesday, prompted the Russian central bank to suspend all foreign exchange trading for a second day.
In an indication of the worsening state of the country's finances, the central bank said reserves fell to US$13.4 billion in the week to August 21, down $1.7 billion.
The government also revealed that Russia's acting Prime Minister Viktor Chernomyrdin was on his way back from emergency talks with the International Monetary Fund managing director Michel Camdessus.
But Mr Kohl yesterday said Russia could not expect any financial help without approving crucial reforms.
'Without the reforms, it will not be possible to mobilise money either from international financial organisations or from Germany.' He said he would hold talks with other key powers to formulate a strategy that would enable Russia to implement the reforms. President Clinton is due to visit Russia next week.
'If [Russia] does not follow through [on reforms] the situation will look bad,' Mr Kohl said.
The rouble sank, despite the suspension of foreign exchange trading, with market quotes ranging from 13 and 16 per US dollar, compared with the last fixing on Tuesday on the Moscow Interbank Currency Exchange of 7.86.
Gold prices also collapsed as worries grew that Russia may increase the sale of gold reserves and other commodities to shore up its finances.
Emerging market strategy head at Rabobank International, Roger Monson, said: 'We are in the grip of a vortex, which has to find its own bottom, and its own bottom will be found if we get a constructive plan for change and agreement between the two main centres of power in Russia: business and the Duma [parliament].
'Until then there will be no demand for rouble assets.' Economists believed the equilibrium level for the rouble was 10 to 15 to the US dollar although the currency was seen hitting 25 roubles against the dollar in the next few days.
Ordinary Russians were reported to be queuing up at cash points to withdraw all their funds to convert them into dollars.
Mr Yeltsin was not even in Moscow yesterday, preferring to work from his hunting lodge about 100 kilometres from the capital.
Speculation in Moscow that Mr Yeltsin could be forced to step down surged yesterday as traditional supporters in the business community were rumoured to be deserting him and lining up behind Mr Chernomyrdin.
The rumours were repeatedly denied by Kremlin officials and Mr Chernomyrdin's aides but Russia experts warned Mr Yeltsin was facing the gravest crisis of his career.
International relations researcher at the London School of Economics, Margot Light, said: 'It is certainly true that he is weaker now than he has ever been before. I think, however, that what we know about him is that he is a man who has made spectacular comebacks in the past, and I don't think we should write him off until we actually have proof.' Some economists said Russia could survive to a certain extent without excess funds because of the high level of barter trade in the economy.