High interest rates, hint of IMF loan may avert disaster

Brutally high interest rates and a strong hint from the managing director of the International Monetary Fund, Mr Michel Camdessus, that a $9.5 billion tranche of credits will shortly become available may be enough to stop Russia's economic crisis reaching political and economic meltdown point. The rouble stabilised yesterday on the Moscow International Currency Exchange (MICEX) thanks to interest rates of 150 per cent and a statement from Mr Camdessus in Kazakhstan's commercial capital, Almaty, which indicated that there would be no problems.

Mr Camdessus said he trusted Russia's central bank and there would be no insurmountable problems with the next tranche of stabilisation credits.

In the longer term, however, Russia's economy faces continuing problems which current measures serve only to put on the long finger.

The same sort of "family" set-ups which dominated the now struggling economies of South Korea and Indonesia have been developing in Russia where exceptionally small numbers of people control vast quantities of wealth.

The incestuous financial groups in Korea, called "Chaebols" and their Indonesian counterparts, the "Chukos", although patently corrupt, managed to build a number of international companies and products; many of their Russian counterparts so far have contrived merely to make personal fortunes from the privatisation of the former assets of the Soviet Union.

Russia's current economic crisis is an extremely serious one. The stability of the rouble, probably the only true economic achievement of successive administrations under President Yeltsin, is now at stake.

The rouble's value is, therefore, a symbol of what has been achieved since the dissolution of the Soviet Union more than six years ago.

Should the rouble collapse in value a crisis which would dwarf that in Indonesia in its repercussions on western politics and economics could develop.

A return to the hyper-inflation which existed in the early years of the decade would, according to most analysts, lead to political and social unrest in a country which militarily, economically and politically, is of far greater importance to Europe and the United States than Indonesia and South Korea combined. The prospect of real chaos in a country which not only has a vast nuclear arsenal but an efficient method of delivering its bombs is very real.

With elections to the parliament due next year and a presidential election set for 2000 a communist parliament and a nationalist president is not an unrealistic scenario.

It will undoubtedly be in the interest of western countries and institutions to give urgent financial support to Russia at this time.

It will also be in their interest to ensure that such monies are spent to bolster Russia's economy rather than the wealth of its many dubious billionaires.

The IMF had no qualms in giving financial support to Russia during the Chechen War and left itself open to accusations by such reputable sources as the New York Times of financing a conflict in which tens of thousands of innocent civilians lost their lives. The current crisis is possibly the most serious for Russia's economy since 1992 when inflation reached 2,500 per cent. Western countries cannot afford to see such a situation arise again.

AFP adds: The Russian Prime Minister, Mr Sergei Kiriyenko, yesterday fired the directors of the oil holding company Rosneft after plans to privatise it failed, Russian news agencies reported.

Mr Kiriyenko dismissed the president, Mr Yuri Bespalov, and the chairman of the firm's board of directors, Mr Alexander Putilov, according to government sources quoted by ITAR-TASS and Interfax.

The action was taken because "of the failure of preparations for a public offer on the sale of 75 per cent of Rosneft shares and the active resistance to the company's privatisation plans," the sources said.