[PEN-L:1288] Russia: Yeltsin lies low as panic grips markets

[Gregory Schwartz <grishas@xxxxxxxx>]

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Friday August 28, 1998
The Guardian

Yeltsin lies low as panic grips markets

BY:Larry Elliott, Mark Atkinson and James Meek in Moscow

Hundreds of billions of pounds were wiped off the value of share prices
around the world yesterday as the shock waves from
Russia's descent into financial anarchy and economic chaos reached the
West.

Stock markets in every continent were gripped with panic after Moscow's
decision to stop defending the ailing rouble led to
fears about the future of President Boris Yeltsin and the entire reform
process.

With Latin American markets also in a turmoil, dealers expressed
mounting concern that global economic activity could grind to
a halt in a re-run of the Depression of the early 1930s.

The Russia crisis "gets the medal" for the worst emerging market
meltdown, Martin Quintin-Archard, head of London- based
Emerging Markets Bond & Asset Trading Co, told the Bloomberg news
agency.

"This is the biggest, the most, the quickest so far. Look out the window
for a plummeting of bankers."

London's FTSE 100 Index closed 176.9 points down on the day, while the
Japanese stock market fell by more than 500
points to its lowest in six years. Wall Street, hitherto largely
unruffled by the deepening global financial crisis, suffered a hefty
fall
as some of the big American banks owned up to huge losses in the former
Soviet Union.

In New York, the Dow Jones Index closed down a massive 357.36 points.

Brazil's stock market lost 10 per cent of its value and has dropped by a
third this year. Mexico's bourse suffered a 5 per cent
fall yesterday, while among the leading European exchanges, Frankfurt
and Madrid were the worst affected, seeing share prices
shaved by around 5 per cent.

In Moscow, the run on share prices continued with a vengeance, with the
stock market down by 84 per cent and now worth
less than the valuation of the supermarket chain Sainsbury's on the
London stock exchange.

With no floor in sight for the rouble, the central bank cancelled trade
on the country's main foreign currency exchange until
further notice. The Russian currency hit 11 to 12 roubles against the US
dollar in electronic trading but without an official central
bank rate, the economy cannot function.

The new premier, Victor Chernomyrdin, moved to nationalise the country's
third-largest bank yesterday as parliament and the
government neared agreement on a shift away from the economics of the
Yeltsin years.

The world buzzed with rumours that the Yeltsin era had already come to
an end with a letter of resignation from the president,
but the Russian leader's press spokesman, Sergei Yastrzhembsky, said Mr
Yeltsin would be in the Kremlin today.

Amid a torrent of speculation that Mr Yeltsin is gravely ill or on the
brink of quitting, one Russian newspaper carried a picture
of the president looking out of a car window with the banner headline:
"He's Alive".

Yesterday's turmoil was fuelled by the first indications of the scale of
the losses suffered by Western investors in Russia.
Billionaire financier George Soros, who precipitated the crisis two
weeks ago by calling for a devaluation of the rouble, has
seen his Quantum fund lose $2 billion, while Republic New York bank said
losses from investments in Russia would wipe out
its third-quarter profits.

America's 18th-largest bank said it will take a third-quarter charge
against profits of $110 million to cover losses in Russia and
take an additional $45 million from earnings to put aside for potential
defaults of Russia loans.

Meanwhile, the Credit Suisse Group confirmed that the Russian meltdown
had cut its profits so far this year by a third to $500
million; Germany's Deutsche Bank admitted that it had $750 million of
uninsured credit tied up in the country; and UBS AG, the
Swiss-based banking giant, said it had lost $120 million in Russia
during August alone.

In Britain, the crisis has even been felt in the Welsh hill farms, where
the once strong demand from Moscow for sheepskin coats
has dried up.

"Russia's demand for sheepskin coats has given a much needed boost to
the sheep industry - now Russia's devaluation and its
serious economic problems could add to pressure on prices at Welsh sheep
markets," said the Farmers Union of Wales.

With few signs that the Group of Seven industrial nations or the
International Monerary Fund are preparing an emergency
financial package for Russia, the authorities in Moscow appeared to be
rolling back some of the reforms of the past decade.

The target of what may be the first of a series of nationalisations was
the country's third-largest bank, SBS-Agro, which has an
estimated 25 million small depositors.

The move by the central bank, which asked parliament to pass a law
enabling the nationalisation, is the first outright attack by
the authorities on one of the country's "oligarchs", the financier
Alexander Smolensky, who owns SBS-Agro.

MPs said yesterday that they had drafted two documents, which if
accepted would amount to the sharpest constitutional and
economic turn taken by the country's rulers since the collapse of the
Soviet Union.

 ¿ Copyright Guardian Media Group plc.1998

--
Gregory Schwartz
Dept. of Political Science
York University
4700 Keele St.
Toronto, Ontario
M3J 1P3
Canada

Tel: (416) 736-5265
Fax: (416) 736-5686
Web: http://www.yorku.ca/dept/polisci


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<HTML>
Friday August 28, 1998
<BR><I>The</I> <B>Guardian</B><B></B>

<P><FONT SIZE=+2>Yeltsin lies low as panic grips markets</FONT>

<P>BY:Larry Elliott, Mark Atkinson and James Meek in Moscow

<P>Hundreds of billions of pounds were wiped off the value of share prices
around the world yesterday as the shock waves from
<BR>Russia's descent into financial anarchy and economic chaos reached
the West.

<P>Stock markets in every continent were gripped with panic after Moscow's
decision to stop defending the ailing rouble led to
<BR>fears about the future of President Boris Yeltsin and the entire reform
process.

<P>With Latin American markets also in a turmoil, dealers expressed mounting
concern that global economic activity could grind to
<BR>a halt in a re-run of the Depression of the early 1930s.

<P>The Russia crisis "gets the medal" for the worst emerging market meltdown,
Martin Quintin-Archard, head of London- based
<BR>Emerging Markets Bond &amp; Asset Trading Co, told the Bloomberg news
agency.

<P>"This is the biggest, the most, the quickest so far. Look out the window
for a plummeting of bankers."

<P>London's FTSE 100 Index closed 176.9 points down on the day, while the
Japanese stock market fell by more than 500
<BR>points to its lowest in six years. Wall Street, hitherto largely unruffled
by the deepening global financial crisis, suffered a hefty fall
<BR>as some of the big American banks owned up to huge losses in the former
Soviet Union.

<P>In New York, the Dow Jones Index closed down a massive 357.36 points.

<P>Brazil's stock market lost 10 per cent of its value and has dropped
by a third this year. Mexico's bourse suffered a 5 per cent
<BR>fall yesterday, while among the leading European exchanges, Frankfurt
and Madrid were the worst affected, seeing share prices
<BR>shaved by around 5 per cent.

<P>In Moscow, the run on share prices continued with a vengeance, with
the stock market down by 84 per cent and now worth
<BR>less than the valuation of the supermarket chain Sainsbury's on the
London stock exchange.

<P>With no floor in sight for the rouble, the central bank cancelled trade
on the country's main foreign currency exchange until
<BR>further notice. The Russian currency hit 11 to 12 roubles against the
US dollar in electronic trading but without an official central
<BR>bank rate, the economy cannot function.

<P>The new premier, Victor Chernomyrdin, moved to nationalise the country's
third-largest bank yesterday as parliament and the
<BR>government neared agreement on a shift away from the economics of the
Yeltsin years.

<P>The world buzzed with rumours that the Yeltsin era had already come
to an end with a letter of resignation from the president,
<BR>but the Russian leader's press spokesman, Sergei Yastrzhembsky, said
Mr Yeltsin would be in the Kremlin today.

<P>Amid a torrent of speculation that Mr Yeltsin is gravely ill or on the
brink of quitting, one Russian newspaper carried a picture
<BR>of the president looking out of a car window with the banner headline:
"He's Alive".

<P>Yesterday's turmoil was fuelled by the first indications of the scale
of the losses suffered by Western investors in Russia.
<BR>Billionaire financier George Soros, who precipitated the crisis two
weeks ago by calling for a devaluation of the rouble, has
<BR>seen his Quantum fund lose $2 billion, while Republic New York bank
said losses from investments in Russia would wipe out
<BR>its third-quarter profits.

<P>America's 18th-largest bank said it will take a third-quarter charge
against profits of $110 million to cover losses in Russia and
<BR>take an additional $45 million from earnings to put aside for potential
defaults of Russia loans.

<P>Meanwhile, the Credit Suisse Group confirmed that the Russian meltdown
had cut its profits so far this year by a third to $500
<BR>million; Germany's Deutsche Bank admitted that it had $750 million
of uninsured credit tied up in the country; and UBS AG, the
<BR>Swiss-based banking giant, said it had lost $120 million in Russia
during August alone.

<P>In Britain, the crisis has even been felt in the Welsh hill farms, where
the once strong demand from Moscow for sheepskin coats
<BR>has dried up.

<P>"Russia's demand for sheepskin coats has given a much needed boost to
the sheep industry - now Russia's devaluation and its
<BR>serious economic problems could add to pressure on prices at Welsh
sheep markets," said the Farmers Union of Wales.

<P>With few signs that the Group of Seven industrial nations or the International
Monerary Fund are preparing an emergency
<BR>financial package for Russia, the authorities in Moscow appeared to
be rolling back some of the reforms of the past decade.

<P>The target of what may be the first of a series of nationalisations
was the country's third-largest bank, SBS-Agro, which has an
<BR>estimated 25 million small depositors.

<P>The move by the central bank, which asked parliament to pass a law enabling
the nationalisation, is the first outright attack by
<BR>the authorities on one of the country's "oligarchs", the financier
Alexander Smolensky, who owns SBS-Agro.

<P>MPs said yesterday that they had drafted two documents, which if accepted
would amount to the sharpest constitutional and
<BR>economic turn taken by the country's rulers since the collapse of the
Soviet Union.

<P>&nbsp;¿ Copyright Guardian Media Group plc.1998

<P>--
<BR>Gregory Schwartz
<BR>Dept. of Political Science
<BR>York University
<BR>4700 Keele St.
<BR>Toronto, Ontario
<BR>M3J 1P3
<BR>Canada

<P>Tel: (416) 736-5265
<BR>Fax: (416) 736-5686
<BR>Web: <A HREF="http://www.yorku.ca/dept/polisci";>http://www.yorku.ca/dept/polisci</A>
<BR>&nbsp;</HTML>

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