Russian politicians prescribe different remedies for crisis

While the Russia-US summit failed to come up with new ideas to save the economy, Russian officials pulled in different directions yesterday to get to grips with the financial crisis and plunging rouble.

With the Russian currency slumping again but still no confirmed government to battle the economic mayhem head-on, deputies and interim ministers plotted courses out of the financial minefield - using very different maps.

The State Duma (lower house) of parliament adopted an economic policy blueprint approved by the acting Prime Minister, Mr Viktor Chernomyrdin, which enshrines money-printing reflation and state control at the heart of efforts to shore up vulnerable swathes of the economy, including banks and industry.

But the interim Deputy Prime Minister, Mr Boris Fyodorov, signalled a contrary tack, stressing that his talks with Argentine monetarist trouble-shooter Mr Domingo Cavallo had impressed the need to install a currency board to defend the rouble as tightly as possible.

"The Argentine variant, with modifications, is the only radical way" out of the crisis, Mr Fyodorov told journalists, referring to Argentina's adoption of a currency board in 1991 to battle hyperinflation.

But a senior US official said that it was too early to make plans for a currency board to tie the battered rouble to a stronger currency.

The inflationary possibility has become a grim reality as a result of the nose-diving rouble. Prices are rising daily in response to the regular lurches of the Russian currency.

Cut free by an effective devaluation on August 17th, the rouble has sunk like a stone through the political power vacuum in Moscow with no signs of touching the bottom yet.

The central bank gave its official rate yesterday at 12.82 to the dollar. Rouble-dollar trading resumes on the interbank exchange today with a new averaged fixing method set to determine the currency's value.

The central bank's inability to defend its currency has drawn widespread criticism, and the Duma called yesterday for the bank's chairman, Mr Sergei Dubinin, to resign.

But Mr Dubinin said he had no intention of so doing, and his cohorts meanwhile unveiled a plan to try and sandbag a banking sector which teeters ever closer to collapse with every point the rouble loses.

Banks have been dealt a series of seismic blows in recent weeks. The rouble collapse is eating away at their balance sheets, the government's debt default has essentially robbed them of a large chunk of their assets, while customer panic has touched off a run on deposits bringing even the largest retail banks to their knees.

The central bank announced a plan to help six top retail banks over the hump, proposing that they offer clients the option of switching their deposits to Sberbank, the country's largest bank, where the savings would be guaranteed.

Deposits in the banks will be frozen from today until they have concluded their agreements with Sberbank, the bank said in a statement.

Russian banks have enjoyed a modicum of breathing space afforded by a 90-day loan repayment moratorium, but foreign creditor banks were caught cold by the unilateral decision.

Meanwhile, US ratings agency Moody's said yesterday it had put a string of European banks on review for downgrade due to their Russia exposure.

"The general effect of Russia's troubles is clearly negative, to the extent that the banks' Russian exposures, added to their existing burden of distressed East Asia credits, will put further strains on some of these banking groups' fundamentals," Moody's said.

In relation to Russian exposure, Moody's has already put on review for possible downgrade subsidiary ratings for Credit Suisse First Boston, Bank Austria and Credit Agricole Indosuez, the investment bank of French bank Credit Agricole.

Most of the large banks in Germany and France, as well as some large groups in Switzerland, the Netherlands, Italy, Austria and Britain have "meaningful Russian exposures," Moody's said.

But the Russian risk "represents in general a more modest share of their business" than east Asia before the financial crisis in that area.