• ACI Russia

08/17/1998 10:37:55 Text of Russian authorities' second statement

MOSCOW, Aug 17 (Reuters) - The following is the full text of the second of two joint statements issued by the Russian government and the central bank on Monday, as translated by Reuters. "The world financial market crisis coincided with the beginning of the Russian economy's recovery. Since October 1997 the government and the Bank of Russia have been defending the major economic policy achievements of recent years: stable prices and firm rouble and, consequently, the people's living standards. As a result of the worsening external economic situation and unsatisfactory state of affairs with budget revenues the problem of managing the government debt has sharply worsened. The expenses related to covering and servicing earlier- issued state securities combined with a low level of tax revenues have become an unsupportable burden for the state budget. Russia's government is obliged to reduce the internal state debt, cut federal budget spending and take foreign loans. In July the economic programme of the Russian government was supported by international finance organisations and by the leading countries of the world. But deepening crisis in Asia and a new collapse of world oil prices did not permit a reestablishment of confidence in Russian securities and a recovery of the budgetary situation. The shrinkage of the country's foreign currency reserves continues and the banking system has started experiencing certain difficulties. In these circumstances the government and the Bank of Russia consider it necessary to undertake a series of measures aimed at normalising financial and budgetary policy. 1. Starting August 17, 1998, the Bank of Russia will start implementing a policy of floating rouble rate within the new "currency coridor" limits which are set at a level of between six and 9.5 roubles per U.S. dollar. The Central Bank will intervene to smooth sharp rouble rate oscillations and will use interest rate policy to support these goals. 2. State securities (GKO and OFZ) which mature before December 31, 1999, will be substituted by new securities. Their technical characteristics will be announced on Wednesday, August 19, 1998. Until the conversion process is completed the trade on the GKO and OFZ markets will be suspended. 3. In accordance with the IMF Charter the government and the Central Bank of Russia will introduce temporary restrictions on Russian Federation residents' operations involving foreign currency transfers. From August 17, 1998 a 90-day moratorium is declared on the repayment of financial credits secured by non-residents of the Russian federation, on paying insurance premiums on loans backed by securities and servicing future foreign currency contracts. Simultaneously, a ban is introduced on non-residents' investments in rouble instruments with a maturity term of up to one year. 4. The government and the Bank of Russia consider stable functioning of the banking, accounting and payment system in the Russian Federation as one of its top priorities. In this respect the government and the Bank of Russia support the creation of a pool by major Russian banks with the aim of supporting stability in inter-bank settlements. Simultaneously, the Bank of Russia intends to undertake supplementary steps to strengthen Russia's banking system. It intends to invite stable Russian banks and leading foreign banks to participate in the effort. 5. The government of Russia, to revive the financial market, will start issuing short-term securities with a maturity of one and two weeks. The spectrum of securities meant for the population will be widened. 6. The government and the Bank of Russia call on the Federal Assembly to undertake legislative measures to establish more rigid control over foreign currency flight abroad. Simultaneously, the government and the Bank of Russia intend to undertake urgent action in this sphere within the framework of their powers. 7. The government again proposes that the State Duma call an extraordinary session before the end of August to adopt key bills that would facilitate the timely payment of pensions and salaries to workers in the budget sphere, create a legal procedure to rescue banks, and strengthen the control and regulation over foreign currency regulation. Signed: Sergei Kiriyenko, Sergei Dubinin, Chairman of the Chairman of the Government of the Bank of Russia of the Russian Federation Russian Federation Moscow, Aug 17, 1998 REUTERS

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