08/13/1998 15:47:26 Economist Hanke backs Russia currency board idea
WASHINGTON, Aug 13 (Reuters) - U.S. economist Stephen Hanke
on Thursday threw his weight behind new suggestions from
financier George Soros for a currency board in Russia, saying
it was the only way to stabilize the precarious economy.
Hanke, a long-term proponent of the rigid exchange rate
mechanism, said Russia should allow the dollar to circulate in
parallel to the ruble in preparation for the switch.
The authorities should also open the market to foreign
banks and then float the ruble for 30 or 60 days to allow the
market to find a value for the currency, which was quoted at
6.34 to the dollar on Thursday.
"I think it is the only thing that can in fact stabilize
the situation and keep the Yeltsin government in the saddle,"
he told Reuters Television, referring to Russian President
A currency board, in use in Argentina, Bulgaria, Hong Kong
and a handful of other countries and territories, pegs the
domestic currency to an outside one and ties cash in
circulation firmly to central bank reserves.
Hanke floated the currency board idea aggressively earlier
this year as a solution to a raft of financial problems in
Indonesia. But both the International Monetary Fund and U.S.
Treasury objected to the proposals.
They said Indonesia banks were too weak to cope with the
tough demands of a currency board and the system would only
provide a brief window of opportunity for those wanting to get
their money out in a hurry.
Dirk Damrau, head of research at MK Renaissance in Moscow,
told the program that a currency board would need structural
reform and fiscal consolidation in Russia, which already faces
huge problems in collecting tax revenue.
"Keep in mind, that's not a solution, that's a mechanism,"
he said. "It sounds nice, but we'd need constitutional change
to make it happen."
Soros, a billionaire financier who is equally well known as
a philanthropist in Russia and eastern Europe, said in a letter
to the Financial Times that a $50 billion currency board backed
by the Group of Seven industrialized countries would be the
only way to end the Russian financial crisis.
He said the ruble should be devalued by 15-25 percent
before the introduction of the system, both to compensate for
lower oil prices and to reduce the volume of reserves needed.
Russia's central bank said the plan would not solve the
crisis, but would create opportunities for speculation.
((Janet Guttsman, Washington newsroom, +1 202 898 8309