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Wednesday, August 12, 1998 Published at 12:36 GMT 13:36 UK


Business: The Economy

Kiriyenko gets tough

Russian Prime Minister Sergei Kiriyenko is trying to avert a meltdown

Russian Prime Minister Sergei Kiriyenko has vowed to pursue his government's economic policies despite a new crisis in the country's financial markets.

Russia's stock markets are recovering only slowly from Tuesday's battering, but dealers say they are unsure how long the recovery will last.


Chief Ecnomist at EBRD Nick Stern: "I think the markets are overreacting"
Mr Kiriyenko said: "The worse the situation is, the more tough and precise we must be about fulfilling our programme."

A slump in emerging market debt and world oil prices helped bring about a 9% slide in Russian shares on Tuesday.

It took the benchmark stock index to its lowest point in more than two years and treasury bill yields soared to 125-140%.

The yields edged back in early trade on Wednesday to 120-137% while the key share index rose 4.7%.

Investors anxious

Dealers said investors needed to be reassured about government plans to end Russia's financial crisis before they would return to the market in a sustained way.

A big improvement in sentiment was also needed in world markets, running scared in the face of a vulnerable yen, talk of devaluations in China and debt defaults in Indonesia.

Boris Jordon, head of MFK Rennaissance bank said: "The market is waiting: will the Russian government do what it said it will do or not."

He said the government had to act quickly to improve the tax system.

Kremlin under pressure

The Kremlin has been struggling to reassure nervous investors that Russia is not heading for a financial meltdown.

A senior Kremlin official said the central bank had at least $17.5bn in reserves and did not need to draw upon credits received from the International Monetary Fund.

Alexander Livshits, the deputy head of Russian President Boris Yeltsin's administration, said the finance ministry had enough funds to service all its debts for the coming month.

He said: "We are not expecting a collapse.

However he acknowledged: "The situation may slightly deteriorate or stay at yesterday's level"

Worst case scenario

The IMF emergency loans, granted last month, have given Russia a little breathing space, but unless the government can boost revenues quickly some analysts believe it may find that within a month or two it can no longer service its mounting short-term debts.

Earlier in the week Deputy Finance Minister Oleg Vyugin said there would be no domestic debt auctions this month.

He said: "We are not going to borrow at 100%. This is obvious."

He added that tax collection in the first 11 days of August was higher than in the same period of July, but he gave no details.

He estimated domestic debt repayments in August at 12-13 billion roubles.

He added: "The maximum expenditure for repayments of the domestic state debt is 12 to 13 billion roubles. This is the worst case scenario."





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