• ACI Russia

08/17/1998 09:13:38 Market analysts' reactions to Russia policy moves

LONDON, Aug 17 (Reuters) - Following are international market analysts' comments on news of an overhaul in Russia's currency and debt policy. Russia, in statements released to Russian media, announced it was changing its corridor for the rouble and called a 90-day moratorium on repayment of foreign debt. PETER BOONE, CO-HEAD OF RESEARCH, BRUNSWICK WARBURG, MOSCOW "It was the markets' worst nightmare six months ago. I think as of a week or two weeks ago it's the markets' best dream in some sense because it was clear things were falling apart and something had to be done very quickly. And I think the worst nightmare was holding off, not doing anything, letting reserves disappear, and then having a real blow-up where the rouble could have gone several times its current levels, several hundred percent depreciation from here. "Instead they're trying to stop that. It's going to be a very, very difficult next few months and we'll see how it works out. But it's decisive measures and that was what was needed." NIGEL RENDELL, EMERGING MARKETS STRATEGIST, SANTANDER INVESTMENT BANK, LONDON "I think the situation had become so bad they had no alternative. Basically what they've said is: 'We're defaulting and devaluing.' The question is where the currency goes from here. People may take Soros' 20 percent as a benchmark but currencies always overshoot on the downside, so it could go down as much as 30 percent. It'll depend partly on how they can restrict cash getting out of the country -- they'll want it to be orderly. "It's obviously a major setback for economic policy, but over the past week it had become inevitable they would have to do something. I think investors over time will have a short memory... Given where the equities market has fallen there will be people willing to pick up some bargains. But for now most people are going for safety." ANDREW MILLIGAN, ECONOMIC ADVISER, CGU ASSET MANAGEMENT, LONDON "The timing of events like this is very difficult although it was definitely hotting up recently...The debt reorganisation is obviously something that will worry a large number of investors. The ability to invest but also the ability to disinvest are extremely important for international investors such as ourselves. Part of the problem in recent weeks has been that thin trading volumes have allowed high risk investors to take relatively large positions in vulnerable markets." PARVOLETA SHTEREVA, SENIOR FIXED-INCOME ANALYST FOR EMERGING EUROPE HIGH-YIELD MARKETS, MFK RENAISSANCE, MOSCOW "I really think the central bank needs to clarify a few more points before people feel reassured. First of all it's not quite clear what the moratorium on external debt means and how that's going to work -- whether it's just a delay of payment or whether this is a prelude to some restructuring on external debt. Obviously that will impact on sentiment as there are a number of foreign banks that do hold forward contracts or repo contracts. "In fact there are no external debt payments within the next 90 days. There might be a potential Paris Club payment within that period, but if you look at the first coupons that are due on Russian Eurobonds and PRINs and IANs they are in the second half of November, so just outside the 90-day period. However, obviously in terms of forward and repo contracts it needs to be clarified. "Obviously all these measures were necessary although the Russians were denying them for a long time. Even now they're denying that the widening of the band is devaluation and that restructuring of internal debt is default. Yes they are -- we're having a devaluation and we are in a situation of default. So that feeling of denial is not very reassuring. They have to come out and really show their hand and come out with a package. On top of that they will have to detail their economic policy, their structural policy going forward." RICHARD GRAY, HEAD OF EMERGING MARKETS RESEARCH, BANK OF AMERICA, LONDON. "I don't think (the rouble will go) all the way to the outer limit, mainly because the Russians are also in the process of imposing restrictions on access to the foreign exchange market, so the actual volume of dollar demand onto the market is controllable. I guess that some number that's a bit weaker than the six but isn't all the way to the nine is what they're hoping for. Certainly on any purchasing power parity concept it doesn't warrant being at nine and therefore they presumably hope it doesn't go all the way down to the outer limit. "I think the implementation of the last package together with the passage of the various tax laws that weren't passed in the last sessions is what's necessary next, because the whole crisis comes back to the lack of tax revenue." ((London newsroom +44 171 542 6784, fax +44 171 542 5285))

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