As Russia searches for a new government and a program to pull the nation out of a tailspin, fresh panic swept through its financial institutions Tuesday as the currency plunged about 9 percent, three banks announced a merger to shore up their stability and the government unveiled a plan to stretch out the repayment of its debt.
Coming at a moment when Prime Minister-designate Viktor Chernomyrdin is still negotiating with the Parliament over the makeup of his new government, the ruble's abrupt drop stoked new fears of inflation similar to the spiraling rates that plunged Russia into a depression in the early 1990s."The situation is worse today because then, the country was dependent on domestic production, however bad it may have been," said Mikhail Berger, editor of the newspaper Segodnya. "Now, big cities are mostly dependent on imports, and traders can no longer get credits, not from banks, not from abroad. So there is a danger that supplies to the cities will fall short."
The drop was the deepest in four years, and it was stopped only when the Central Bank intervened to hold its value at 7.8 to the dollar, after trading was twice suspended. In the 10 days since the ruble's value was weakened from its previous level of 6.2, the Bank has spent an estimated $1 billion to buy rubles in currency markets to keep it from falling too far, too fast.
The lunge for dollars was driven mostly by Russian banks that scrambled to trade rubles for dollars and other foreign currencies. The moves reflected a pessimism by bankers and investors about the outlook for the ruble as well as the uncertainty over whether Chernomyrdin can halt the crisis.
Chernomyrdin, in meetings Tuesday with parliamentary leaders, said he was open to a coalition government that would necessarily include members of a Communist opposition that has been a resolute foe of Russia's now-sputtering economic reform program.
Putting forward the Parliament's demands in unusually blunt and bold terms, Speaker Gennady Seleznyov, a Communist, pressed for a greater role for the legislature in a system that until now has been dominated by President Boris Yeltsin.
With Yeltsin now acting increasingly like a lame duck, space has opened up on the political spectrum for new forces. Chernomyrdin, whom Yeltsin all but anointed as his political heir in an address to the nation Monday, is one beneficiary, but others include members of Russia's powerful financial elite, many of whom support the new prime minister, and the legislature itself.
"I cannot rule out the possibility that the president might step down before his term is over, leaving the country in the hands of a more predictable prime minister," Seleznyov said.
At his press conference Tuesday, Seleznyov struck a defiant note, warning Yeltsin to keep his hands off the new government and saying the parliament will insist that Chernomyrdin follow the legislature's own anti-crisis package - now in preparation - before confirming him.
Russia's deepening troubles came on a day when major investors anxiously awaited Russia's plan to restructure about $40 billion in Russian short-term domestic debt, of which about 25 percent is held abroad.
The plan, delayed Monday so it could be reviewed by Chernomyrdin, will allow investors holding Russian short-term Treasury bills, which were sold with maturities of up to three years, to trade them for three new issues of Russian securities that will mature over three to five years, with varying interest rates and staggered redemption schedules.
Alternatively, investors can swap their ruble-denominated notes for a new security, maturing in 2006, denominated in dollars but paying a slender 5 percent annual interest rate.
Reaction to the plan was cool at best, especially in the United States. "If the question is whether this package will secure Russian access to capital markets in the future, then the answer is no, it doesn't," said an U.S. investor who spoke on the condition of anonymity. "This is sort of the slash and burn approach to restructuring."
Much of the turmoil has involved Russia's banking system, which has faced a double-sided problem of a cash shortage and debts they cannot fully repay. A 90-day moratorium has been imposed on bank debt owed abroad, and three major Russian banks on Tuesday announced a proposal to form a new banking company in a bid to bolster their capital base.