08/13/1998 14:29:11 Russian economist agrees with Soros on devaluation
By Julie Tolkacheva
MOSCOW, Aug 13 (Reuters) - Russia's most outspoken critic of
the central bank's monetary policies presented the case on
Thursday for a devaluation, saying it would prevent an
Andrei Illarionov, who has been feuding with the central
bank for months over devaluation, told a news conference that he
agreed with a proposal by international financier George Soros
to devalue the rouble and peg it to the dollar or euro.
"If unprecedented measures are not taken in the very near
future, there are serious grounds to expect the course of events
we saw in our recent history and in the recent history of a
southeast Asian country," Illarionov said referring to the
collapse of the Soviet Union and social unrest in Indonesia.
The central bank on Thursday reiterated its official
position that a rouble devaluation would not solve any of
Russia's problems and would only further destabilise markets.
But Illarionov did not agree. "Devaluation will bring rouble
liabilities and hard currency reserves into equilibrium. The
quicker the authorities carry out a devaluation, the quicker the
markets will stabilise."
Soros, in a letter to Thursday's Financial Times newspaper,
said the best solution for Russia would be a "modest" 15-25
percent devaluation and the subsequent introduction of a
currency board, pegging the rouble to the dollar or euro.
"Any man of common sense, not only an economist...would
propose a rouble devaluation to make it a strong currency,"
He blamed Russia's current financial crisis on unbacked
rouble issuance by the central bank.
"The lack of currency reserves of the country is caused
first of all by mistakes in the central bank's monetary and hard
currency policy in the past year and a half," Illarionov said.
Central Bank Chairman Sergei Dubinin has dismissed
Illarionov's accusations as "lies".
Illarionov, director of Russia's Institute for Economic
Analysis, said foreigners had invested $19 billion in local
government paper in 1997, but the central bank had bought only
At the same time the central bank issued roubles and
rouble-denominated instruments in volumes exceeding dollar
investment in the country, he said, adding that devaluation was
the only economic way out of the present crisis.
He believed the government had only about two weeks to carry
out a relatively painless devaluation.
Russian officials say devaluation would lead to a collapse
in the banking system and trigger inflation. The rouble's
stability and low inflation are seen as the two main
achievements of years of painful reforms.
The banking system is already suffering as a result of
liquidity problems and a crisis of confidence, with some banks
failing to meet obligations to each other and to the central
Russian shares fell sharply on Thursday and short-dated
treasury bill yields soared as banks scrambled for roubles.
The central bank stood firm by the national currency,
prohibiting banks' from buying dollars for their own needs and
expanding their access to overnight credits.
But Illarionov said the measures meant the central bank was
returning to Soviet-style methods of managing the economy.
"This is a return to the command-administrative,
bureaucratic Soviet economy," he said.
((Julie Tolkacheva, Moscow Newsroom, +7095 941-8520