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Friday, August 14, 1998 Published at 05:34 GMT 06:34 UK

Business: The Economy

G7 words calm Russia's markets

BBC correspondent Alan Little: 'A tidal wave of social unrest is threatened'
The Russian economy appears to have stepped back from the brink, at least for the moment, as financial markets calmed down on Friday.

Share prices in Moscow rebound from Thursday's dramatic slump.

The markets reacted to comments by a US official, who had said that the G7, the world's seven richest countries, had not given up on Russia yet.

Before the markets opened, the Russian president, Boris Yeltsin ruled out a devaluation of the rouble and called on the Duma, the lower house of the Russian parliament, to convene for an extraordinary session next week, to deal with the crisis.

International concern

[ image: On the rebound]
On the rebound
The leading Russian Trading System (RTS) index finished 13.67% up on Thursday's close and well clear of the two-year lows set with alarming regularity earlier in the week.

But volumes were thin and traders said the shares had soared as a result of the concern expressed by White House spokesman Michael McCurry.

"The international community has a big stake in seeing that Russia gets their economy moving in the right direction," Mr McCurry said, noting that Group of Seven deputy finance ministers had discussed the crisis.

On Thursday, trading on the Moscow stock exchange had to be suspended after share prices lost more than 11% within one hour. Since the beginning of the year, the Russian equity market has shed more than 80% of its value.

'No devaluation'

BBC Moscow Correspondent Rob Parsons: 'Is the Duma really prepared to have another emergency session?'
On Friday morning, President Yeltsin had reiterated that his government would not devalue the rouble, a move which would completely undermine investors's confidence in the Russian markets.

He blamed the recent crisis on a "new wave of global market troubles."

Mr Yeltsin also signed an urgent appeal to members of the Duma, the lower house of the Russian parliament, to convene for an extraordinary session next week, to deal with the crisis.

The move was announced by the Kremlin, which said Mr Yeltsin wanted members to examine what it called stabilisation projects drawn up by the government.

Soros warning

[ image: Russian banks are having trouble with dollar loans]
Russian banks are having trouble with dollar loans
The trouble began when billionaire financier George Soros warned that the turmoil in Russia's financial markets had "reached a terminal phase."

Mr Soros, one of the world's most influential investors, wants the rouble to be pegged to the US dollar or a European currency.

In a letter to the Financial Times newspaper, he also called on the Group of Seven industrialised countries to provide a further $15bn to shore up confidence in the country's troubled financial system.

He believes that the best way to resolve the crisis is for a 15-25% devaluation of the rouble and the setting up of a currency board.

Mr Soros said devaluation was needed in the wake of the huge decline in oil prices, one of Russia's main exports, and to reduce the amount of reserves needed for the currency board.

[ image: The Russian economy is weak]
The Russian economy is weak
Stock markets in Europe and the USA tumbled as dealers feared that yet another emerging market was going into meltdown.

And US credit rating agencies Standard and Poors and Moody's Investors Services downgraded Russia's foreign debt - which will make it more expensive to borrow abroad. They both said the outlook remained negative.

Crisis despite bail-out

Russia is facing further economic turmoil despite promise of a $22bn financial bail-out lead by the International Monetary Fund.

Russian shares have collapsed in recent months amid fears that the government will struggle to pay off its debts.

The government has some $20bn in short-term debt that must be redeemed by the end of the year. It has been finding it difficult to collect taxes, especially from the energy companies whose profits have been hit by the fall in the oil price.

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