• ACI Russia

08/27/1998 12:23:56 West says no financial bail-out for Russia

By Robert Mahoney

BONN, Aug 27 (Reuters) - Germany, Russia's biggest creditor,

led Western countries on Thursday in warning Moscow it would

receive no cash bail-out without sweeping economic reform.

German Chancellor Helmut Kohl voiced concern about the

financial crisis in Russia, where the central bank suspended

currency trading to stop the rouble extending Wednesday's 40

percent plunge against the mark.

German officials said Kohl would speak to U.S. President

Bill Clinton and British Prime Minister Tony Blair about the

economic and political upheaval in Russia which has rattled

world financial markets. Kohl had already spoken to French

President Jacques Chirac, they said.

"Without the reforms it will not be possible to mobilise

money either from international financial organisations or from

Germany," Kohl told reporters on a visit to Berlin.

He said he wanted to sound out Western governments about how

to help Russia restructure its tottering economy.

"If they don't follow through (on reforms) the situation

will look bad," Kohl said.

Panic spread across Russia as people tried to swap fast

depreciating roubles for scarce dollars.

Acting Prime Minister Viktor Chernomyrdin was trying to put

together a government, while President Boris Yeltsin, whose

authority is in question, was holed up at a residence outside


Western leaders fear the Russian crisis could spill over to

other financial markets.

French Finance Minister Dominique Strauss-Kahn said the West

was willing to help out Russia, but Moscow must do its part by

pushing through economic reforms.

"What must be seen is that we are all committed to doing our

best to help the Russian economy," he told Reuters television.

"We are totally committed to helping Russia."

Strauss-Kahn said the impact of the Russian crisis on France

would be "limited but real" and said he was considering revising

down his forecast for French economic growth next year.

He also confirmed that he and his German counterpart Theo

Waigel were mulling sending a joint letter to Chernomyrdin on

the crisis, but had not yet agreed to do so.

In Frankfurt, the Xetra DAX stock index fell more than four

percent to nearly four-month lows after the Russian central bank

suspended roubled foreign exchange trade. German banks, which

have an estimated $30 billion exposure to Russian debt, were the

heaviest losers.

In Tokyo the share market dropped three percent to close at

a six-year low.

"The Russian factor seems to have had some impact on Latin

American markets and we can't deny its impact on Japanese stocks

either," said Japan's Vice Fiance Minister Koji Tanami.

"We are very worried about this," he said.

Western officials said it was not clear how the

industrialised powers could help turn the tide in Moscow but

they ruled out fresh cash to prop up an ailing system.

Last month the International Monetary Fund put together a

$22.6 billion rescue package but Moscow spent most of the first

tranche of this on its failed defence of the rouble.

"There are no shortcuts in restoring market confidence, and

the next steps are up to the Russians," White House deputy

spokesman Barry Toiv told reporters in Edgartown, Massachusetts,

where U.S. President Bill Clinton was on vacation.

"Now more than ever it's critical that they get their fiscal

house in order and establish policies on the rouble, on

government debt and the banking system that will lead Russia

back to financial stability," he said.

Amid rumours of an economic meltdown Yeltsin sacked his

entire government four days ago and brought back his old ally

Chernomyrdin, whom he had fired just five months earlier.

Chernomyrdin has not said how he intends to handle the

crisis. But Germany's Economics Minister Guenter Rexrodt

dismissed suggestions that Chernomyrdin was hostile to reform.

"I have never had this impression. Chernomyrdin wants

reforms and will also engineer them," Rexrodt said.

With his pragmatic nature, the new prime minister could get

more happening than all those who talked about reforms but could

not bring them about, Rexrodt added.

Rexrodt said the Russian crisis would not have any serious

effects on the German economy or on local investors here.

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