08/28/1998 12:40:54 West leaves Russia to put house in order
By Robert Mahoney
BONN, Aug 28 (Reuters) - Western leaders could only fold
their arms and offer advice on Friday as Russia sank deeper into
an economic quagmire.
German and French ministers came up with ideas but no cash
to help President Boris Yeltsin out of a crisis that has shaken
financial and equity markets, particularly in Europe.
Germany, Russia's biggest foreign creditor and investor,
urged Yeltsin to form a government quickly and to take urgent
steps to restore investor confidence, which has been severely
rattled by Moscow's debt moratorium and the rouble's collapse.
One German official said that it did not matter if acting
Prime Minister Viktor Chernomyrdin brought in the opposition
communists as long as some form of government emerged to halt
Western leaders and officials insisted Russia stand by the
reforms that have dismantled the former communist economy but
brought yet little benefit to most ordinary Russians.
German Finance Minister Theo Waigel warned Moscow not to run
the rouble printing presses to buy its way out of economic
trouble. "There is no way around the rapid implementation of
structural reforms," Waigel said.
French Finance Minister Dominique Strauss-Kahn said he and
finance ministers from Britain, Germany and Italy, the European
members of the Group of Seven industrialised countries, had
written to Chernomyrdin urging him to act rapidly.
Waigel said Germany was playing an active role in
coordinating the international response to the crisis but he did
"The priority is the quick formation and confirmation by the
Duma (lower house) of a competent and strong government," Waigel
A new government must have "a clear commitment to continuing
economic reforms and cooperating with international financial
institutions", he added.
Chernomyrdin, who is trying to put together a government,
said on Friday he had the political backing of key potential
rivals like Moscow mayor Yuri Luzhkov and Yegor Stroyev, the
speaker of the upper house of parliament.
Yeltsin appointed Chernomyrdin last weekend, just five
months after sacking him.
U.S. officials prepared on Friday for a meeting between
Yeltsin and President Bill Clinton in Russia next week but no
details emerged of a coordinated G7 response to the crisis.
Deputy U.S. Treasury Secretary Lawrence Summers said there
was no single approach to the problems facing emerging markets.
"While there are important common global elements, each
country's situation has to be evaluated and responded to in
terms of its own particulars," he told reporters in Washington.
The United States and other countries had hoped that a $22.6
billion rescue package put together last month by the
International Monetary Fund would restore international market
confidence in Russia. But Moscow spent most of the first tranche
of the package on a failed defence of the rouble.
Despite the bailout, Russia effectively devalued the rouble
and declared a 90-day moratorium on repayment of some foreign
credits last week. The Russian government said it is likely to
announce details of a short-term rouble debt restructuring plan
Waigel said "an important precondition" for the granting of
a further tranche of help would be steps by Moscow to increase
But he cautioned against printing money.
"Turning up the printing presses is never a wise solution.
Inflation is no way to escape the financial crisis."
Both the French and German finance ministers played down the
immediate risks of the crisis to their economies, a view echoed
by the Brussels-based European Commission.
"We should not over-exaggerate the stock market
reaction...the economic analysis of the Commission's services at
the moment is still that the economic consequences for the EU
are minimal," spokeswoman Martine Reicherts told reporters.
But the German Insitute for Economic Research (DIW) warned
that the crisis would spread to East Europe and called for
western European interest rate cuts to ease the pressure.
"In my view Europe must clearly lower interest rates in
order to prevent us from falling into a deflationary spiral,"
DIW chief economist Heiner Flassbeck told Reuters.
Flassbeck said the rouble crisis hitting Russia could spread
"like wildfire" to its neighbours, forcing other former Soviet
states to devalue their currencies.
"There will certainly be further devaluations. I cannot
imagine that Kazachstan and Ukraine will be able to maintain
their currencies," he said.
While the German government has insisted that the Russian
crisis would have only a small impact on the German economy,
Flassbeck warned that Eastern Europe as a whole accounted for
over 10 percent of German exports.
"If Eastern Europe collapses that will have an enormous
impact on Germany," he said.