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A crisis broke out on world financial markets when the
Russian economy was at the start of a recovery. From October
1997 the Government and the Bank of Russia have been
protecting the main achievements of the economic policy of
the recent years--stable prices and a fixed ruble and,
hence, the living standards of the people.
The problem of servicing the national debt aggravated sharply [sic] with the worsening of the foreign economic situation and because of the unsatisfactory state of affairs with revenues of the budget. Expenditures for the redemption of the earlier issued state securities and the payment of interest on them have become a heavy burden on the state budget with tax collection being low. The Russian Government has to reduce the domestic state debt, cutting expenditures under the federal budget and making external borrowings. The Government's economic program was backed in July by international financial organizations and leading countries of the world. However, the crisis aggravating in Asia and a new fall of world prices of oil have not permitted the restoration of the confidence in Russian securities and, hence, the improvement of the situation with the budget. The country's foreign currency reserves continue shrinking and the banking system experiences certain difficulties. In this situation the Government and the Bank of Russia deem it necessary to take a set of measures aimed at the normalization of the financial and budget policy. 1. As of August 17, 1998, the Bank of Russia floats the ruble within new limits of the "currency corridor" fixed at the level of from 6 to 9.5 rubles to the US dollar. Interventions by the Bank of Russia will be made to lessen sharp fluctuations in the ruble rate. The Bank of Russia will be using the interest policy for the same purpose. 2. State securities (treasury bills and federal loans bonds) that are to be canceled up to December 31, 1999, inclusively, will be exchanged for new securities. The technical parameters of the exchange will be announced on Wednesday, August 19, 1998. Biddings in the market of treasury bills -- federal loan bonds are suspended till the securities' exchange is completed. 3. Under the provisions of the regulations of the International Monetary Fund, the Government and the Bank of Russia introduce temporary restrictions for Russian residents on large-scale foreign currency operations. A 90- day moratorium is imposed as of August 17, 1998 on the repayment of credits received from non-residents in the Russian Federation, on the payment of insurance on credits insured by the mortgage of securities, on the payments under fixed-term contracts in foreign currency. Non-residents in the Russian Federation are prohibited to invest funds into ruble assets with the time for repayment of up to one year. 4. The Government and the Bank of Russia regard a stable functioning of the banking system and the system of settlements and payments in the Russian Federation as one of [its] important priorities. In this connection, the Government and the Bank of Russia favor the setting up of a payments' pool by the biggest Russian banks to maintain stability of interbank settlements. At the same time the Bank of Russia is going to exert efforts to consolidate the Russian banking system, drawing into this stable [sic] Russian Banks and leading foreign banks. 5. To restore the financial market, the Russian Government will shortly begin placing short-term treasury bills (for a term of one or two weeks). A broader range of securities will be issued for the population. 6. The Government and the Bank of Russia address to the Federal Assembly a legislative initiative to tighten control over the flow of currency abroad. At the same time the Government and the Bank of Russia are going to take urgent actions in the area within the bounds of their powers. 7. The Russian Government repeatedly suggests to the State Duma to hold an extraordinary session before the end of August to pass key draft laws helping to ensure the timely payment of pensions and wages to workers in the state sector, to create legislative procedures for banks' stabilization and to strengthen the system of currency regulation and currency control.
Source: ITAR-TASS, 17 August 1998.
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