Russia's teetering rouble plummeted 9 per cent against the US dollar yesterday as acting premier, Mr Viktor Chernomyrdin said he planned to enshrine industrial revival at the heart of his economic programme.
The fragile Russian currency staged its worst one-day performance in almost four years, nose-diving 9.2 per cent and triggering two suspensions of trading on the inter-bank market, before settling at 7.86 to the dollar.
The free-fall was more due to rumours swirling around the much-awaited government debt announcement than to Mr Chernomyrdin's manifesto, economists said, but most were sceptical that his programme would relieve the pressure on the anaemic Russian currency.
The recalled premier gave a sneak preview of his economic blueprint to a Russian newspaper, vowing to pay off wage and pension backlogs and construct a proper industrial policy "since purely monetary measures will not pull the country from its crisis".
He has already shelved the radical austerity package of the outgoing government and pledged to shore up a precarious, bloated banking sector from the ravages of last week's de facto rouble devaluation.
He received a boost from the sector itself yesterday, with three top banks - Onexim, Menatep and Most-Bank - announcing a mega-merger, and two others - Inkombank and National Reserve Bank - reportedly following suit in what analysts see as a first wave of consolidation to stave off outright collapse of the banking system.
But the rouble collapse, the worst since it lost 27 per cent on October 11th, 1994, presented the new acting premier with his first immediate problem.
Analysts agree Mr Chernomyrdin must prop up the rouble to prevent some top Russian banks from going under. But the central bank, which has spent billions of dollars trying defend the rouble, admitted last Friday that it had run out of funds to prop up its currency.
Traders said the sudden rouble lurch had more to do with Russia's plans to restructure some $40 billion (£28.7 billion) worth of domestic debt frozen last week than with Mr Chernomyrdin's first indications of his economic tack.
"The market needs news on the debt restructuring," Mr Alexei Mamontov, the head of the inter-bank exchange, told Russian television.
But some analysts said the acting premier's plans would fuel inflation and could jeopardise IMF loans to the Russian government,
ultimately heaping further pressure on the rouble.
Others blamed the news of the debt restructuring, which they believe would hurt the economy.
Other traders noted the rouble slump came amid relatively heavy volume of some $430 million, which indicated that the market was slowly coming to life after last week's deathly silence, and that the rouble was thus only now finding an equilibrium.
Despite the rouble fall, nervousness about Russia appeared to ease a little in the markets, particularly in Germany where the Xetra DAX computer trade index ended up 2.92 per cent. Leading the way were German banks Dresdner, upgraded by Goldman Sachs, Commerzbank and Deutsche Bank. All three banks have suffered steep declines in recent days because of their exposure to Russia, where German banks have huge outstanding loans.
London put on a spurt just before the close to show a rise of 100 points or 1.81 per cent, the day's best level, helped by the strong early trading in New York. The Paris bourse too took heart and closed 2.33 per cent higher.
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/VR3765MFOBH2NMV2QNICYDF67M.png)