Date: Wed, 04 Feb 1998 00:29:51 +0000
From: "M.A.&N.G. Jones" <Jones_M-AT-netcomuk.co.uk>
Subject: M-I: Russian boomtime?


Date: Tue, 03 Feb 1998 13:02:17 +0300
From: VLADIMIR RADYUHIN <hindu-AT-com2com.ru>
Subject: poor growth prospects in Russia

The Hindu
MARKET CRISIS BURIES GROWTH HOPES
>From Vladimir Radyuhin
Moscow, February 3.

   A new wave of the market crisis has put Russia on the brink of
currency
devaluation and buried hopes for economic growth in Russia this year
voiced
by the country's leaders recently.
   Relentless pressure on the rouble, brought by foreign capital flight
on
Russia's shaky markets, forced the Central Bank to jack up interests
rates
as of February 2 for the second time over the past two months, to a
prohibitive 42 per cent. Average yields on government securities shot up
to
46 per cent, making domestic borrowing nay-impossible.
   During the past four months foreign investors have withdrawn an
estimated $8 billion from the Russian securities market, a major source
of
borrowing for the government to plug in holes in the budget. A
continuing
run on the rouble is depleting Central Bank reserves of gold and hard
currency, which stood at $25 billion last October, but declined to $16
billion last week, according to the Central Bank Chairman, Mr. Sergei
Dubinin, said. He did not rule out a further hike in interest rates to
shore up the rouble, but brushed aside rumours of a possible devaluation
of
the rouble.
   However, analysts think devaluation is possible.
   "Unless the government succeeds in pushing down bond prices,
devaluation
will be on the agenda," said Mr. Sergei Ivanenko, a member of Parliament

from the liberal Yabloko Party. "Otherwise the economy will collapse-no
one
will invest in production or even in trade, if they can earn 40 per cent
in
hard currency just by buying treasury bills."
   The latest hike in interest rates has reversed last year's successes
in
bringing them down to 21 per cent and wrecked plans to drive them
further
down to 14 per cent this year, to encourage economic growth.
   According to government statistics, the Russian economy last year
posted
a modest 0.4 per cent growth of GDP, the first since the collapse of the

Soviet Union. Russia's GDP has shrunk almost to a half of what it was
seven
years ago. But last year the government claimed that the economy had
finally bottomed out and was poised for more rapid growth in 1998.
   Last month the President, Mr. Boris Yeltsin, ordered the government
to
ensure a 2 to 4 per cent growth this year. But his finance minister cast

doubt on such prospects even before the current market crisis broke out.

   "I'm not a big optimist about economic growth in 1998," Mr. Mikhail
Zadornov said two weeks ago. "I think the 1998 parameters will roughly
follow figures for 1997."
   The situation has since taken a sharp turn for the worse. The Russian

shares market has lost over 30 per cent of its value since January 1,
making it the world's second fastest folding market after Indonesia. The

financial crisis has practically wiped out the gains the Russian shares
market made last year.
   Following the dramatic increase in the Central Bank's rates,
commercial
banks raised their lending rates to over 50 per cent, which has put
credit
out of reach of producers.
   Soaring interest rates have destroyed this year's budget. It was
based
on debt-servicing costs of between 16 and 18 per cent of the planned
expenditure, but the figure will now be much higher. This is a heavy
blow
to a government that has already borrowed heavily and that collects only

about half the taxes it is owed. There are strong indications that the
problem of huge wage arrears, which has steadily built up over the past
two
years, will persist in the current year as well. It took all state
resources to repay most wage debts to public sector workers last month,
but
they are bound to accumulate again, and there is also a much larger wage

backlog in the privatised sector.
   The Central Bank on Monday scaled down its estimate for economic
growth
to under 1 per cent, which is within a statistical margin of error. It
also
said there would be no increase in investment, which has sharply
declined
in recent years.
   Government hopes for economic growth this year were largely based on
official statistics which showed a 1.9-per cent increase in industrial
production in 1997. However, according to Mr. Alexander Livshits,
economic
adviser to the president, "the bulk of the growth has been in the raw
materials sector, which is not a very good sign."
    Analysts are sceptical there would be any tangible economic growth
in
Russia before the turn of the century.
   "We should not expect any economic progress in Russia in the next
three
years," said Mr. Vladimir Gurevich, economic editor for the Moscow News
weekly. "1998 will be a bad year because of the current market crisis,
in
1999 there will be no growth because of parliamentary elections and
preparations for presidential elections the next year, and in 2000
presidential elections will drain all remaining resources."



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