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Russia Reels as Ruble Plummets; Down 10 Percent Against Dollar

By Richard C. Paddock
Los Angeles Times

As the value of the Russian ruble plummeted 10 percent Tuesday - the biggest one-day drop in nearly four years - acting Prime Minister Viktor S. Chernomyrdin hinted he may try to restore stability by forming a coalition government that would include the Communist opposition.

With Russia continuing to reel from its financial crisis, three of its biggest banks sought to avert disaster by announcing they will merge to form the country's largest private banking conglomerate.

And in a separate action Tuesday night, Chernomyrdin announced a plan to repay foreign investors by converting high-interest Treasury bonds known as GKOs into securities that would be paid back over a longer period - with ever-shrinking rubles and at reduced interest rates.

"The crisis in the country is only beginning," said Vyacheslav A. Nikonov, a former adviser to President Boris N. Yeltsin. "Obviously, not a single foreign investor in his sound mind will come to Russia after what was done to foreign lenders."

Some economists said Chernomyrdin's only hope in resuscitating the economy will be to print more rubles - a move sought by the Communists but one likely to ignite the kind of high inflation that Russia has avoided in the recent past.

"He will have to print more money - there is no doubt about this," economist Nikolai P. Shmelyov said. "All other resources have been exhausted. The GKO pyramid has collapsed, Russia is not likely to get any more foreign loans, and there is simply no money left in the country itself."

The plunge in the value of the ruble against the dollar came as Russia's Central Bank released reserve funds to private banks with the idea of increasing the flow of money and stimulating commerce.

Instead, the banks sought to protect the value of their money by converting the rubles to dollars. The buying spree quickly prompted a slide in the ruble's worth.

"Our hope that the banks would use this money to make payments to their clients or settle accounts with each other did not prove right," Central Bank spokeswoman Irina Yasina told ORT television.