• ACI Russia

08/26/1998 11:16:57 FOCUS-Rouble melts down, citizens withdraw savings

(Updates rouble, markets, Yeltsin)

By Adam Tanner

MOSCOW, Aug 26 (Reuters) - Russia's rouble lost more than

two thirds of its value against the German mark on Moscow's main

currency exchange on Wednesday after the central bank voided

dollar trades and said they would not set a dollar rate for the


There was a growing sense of panic among Russian people, who

rushed to banks to withdraw their savings, while some stores

closed down to mark up prices.

"People are also withdrawing en masse their rouble and

dollar savings from banks," said a cashier in the

Omskpromstroibank in the Siberian city of Omsk.

The deepening crisis led to declines in European shares.

Frankfurt was hardest hit among major European bourses, with the

Xetra-DAX declining 2.9 percent in a reflection of German banks'

large exposure to Russian debt. Deutsche Bank AG <DBKG.F> shares

dropped more than six percent to almost a six-month low.

Russian central bank officials appeared paralysed by the

chaos on the nation's financial markets, and in desperation

voided all morning rouble trade against the dollar.

They later said they would not set an official rouble-dollar

rate, called the daily fix, for Wednesday, the first such

frantic run for cover in recent years.

The rouble continued its meltdown in German mark trade on the

Moscow Interbank Currency Exchange (MICEX), and was fixed down

69 percent to 7.6 marks per dollar from 4.4995 the previous day.

About half the stores in GUM, the country's leading

department store off Red Square, shut their doors to increase

prices. Eldery people people wandered the streets with their

final roubles seeking, often without success, anywhere or anyone

to trade their savings into dollars.

"Financial and economic policy is a question to which I am

giving my attention minute-by-minute," Itar-Tass quoted acting

Prime Minister Viktor Chernomyrdin as saying. "I am extremely

dissatisfied with the work of the central bank over the last two


The report said he would talk to the bank's chief, Sergei

Dubinin later on Wednesday.

President Boris Yeltsin summoned Chernomyrdin back from the

political wilderness on Sunday and fired the four-month old

cabinet of reformer Sergei Kiriyenko, 36, saying Russia needed a

"heavyweight" at the helm.

Like a man invited to stand on quick sand, Chernomyrdin has

been unable to stop the rouble's plunge.

The central bank for its part has less ability to support

the rouble as its reserves have fallen sharply in recent weeks.

Its foreign exchange and gold reserves fell to 15.1 billion on

August 14 from 17.0 billion on August 7.

The Federal Securities Commission chairman Dimitry

Vassiliyev later seconded Chernomyrdin's criticism of the

central bank which Dubinin has led since October 1995.

"Serious mistakes were allowed by the leadership at the

highest levels including over the past two years -- the actions

of the central bank and its leadership," he told reporters.

The RTS index of leading shares was down 8.4 percent at 1000

GMT on very low trade volumes.

Trading was suspended on MICEX soon after it started because

of an immediate five-percent drop to 8.26 from Tuesday's fix

against the U.S. currency. The trade -- coming after a 10

percent decline on Tuesday -- was then declared null and void.

At the suspended rate -- already outdated because of the

rouble fall against the German mark -- it is already a third

lower since it was devalued from about 6.2 to the dollar ten

days ago. On Tuesday, the rouble tumbled to 7.88 from 7.14 to

the dollar.

With the rouble spiralling lower and ordinary Russians

alarmed about price rises, Chernomyrdin said any delay in his

confirmation by parliament would exacerbate the situation and he

warned of tough economic decisions ahead.

"Objectively it could turn out that the authorities will

have to take very tough measures for a resolution in the

financial-economic sector," Chernomyrdin was quoted by Russian

news agencies as saying on Tuesday evening.

Yeltsin, who is under fire for the devaluation and sudden

change in the government, was nowhere to be found on Wednesday,

and calls to his receptionist went unanswered.

"We only have information that the president is working, but

we are not saying where he is working. We don't know," said

spokeswoman Darya Plokhova. "So far, he has no meetings planned

for today."

Late on Tuesday, the government announced some details of a

plan to restructure 40 billion worth of domestic debt into

longer-term paper, but besieged officials were still unable to

provide further information on the plan on Wednesday.

Western analysts are calling the scheme an effective default

which will hit investor confidence in Russia for years to come.

Also on Wednesday, Russian Communist leader Gennady Zyuganov

demanded that Chenromyrdin abandon the tough monetary course

which he said was dictated by the West.

"We will only support a policy and a leadership that would

clearly and straightforwardly reject the so-called monetarist

reforms and agree to take a different course," Zyuganov, whose

party is dominant in the parliament, told a news conference.

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