Thursday, August 20, 1998 Published at 15:18 GMT 16:18 UK
Business: The Economy
Russia skirts default, warns banks 'will fail'
The rouble sale is on, but will Russians stay calm?
Russia's government and central bank are trying to calm the nerves of Russian savers, but warn of tough times ahead.
In a move to avoid a full-scale panic, the Central Bank governor Sergei Dubinin promised all investors to "guarantee 100% of deposits" with Russian banks.
He said: "I believe the population trusts the central bank. We will not deceive the people."
However, his calls for calm are still to show any impact. On the streets of Moscow the dollar bought more than nine roubles, far above the interbank rate of 6.995.
On the financial markets, at least, the situation appears to have calmed down. The rouble drifted only slightly in Thursday trading.
The central bank may have to make good on its guarantee within a few days. Mr Dubinin's first deputy, Sergei Aleksashenko, warned that some major Russian banks could fail "within the next few days."
Russia has more than 1,500 commercial banks, but some analysts say that only about a dozen of them may have enough capital to survive.
Many of them have borrowed heavily in dollars which they cannot now pay back. And the banks are heavily involved in the government debt market which was suspended this week.
The Prime Minister, Sergei Kiriyenko, acknowledged the extent of the problems when he explained that these drastic measures had been a desperate attempt to avoid a complete government default.
Mr Kiriyenko said: "If we were to continue servicing our debt and making payments on treasury bills we would be unable to pay wages and pensions."
He said the government would now revise its budgets for 1998 and 1999 "based on the most pessimistic prognoses."
Russia's currency reserves are dwindling as well, after the central bank spent large amounts to defend the rouble.
The central bank confirmed that during last week alone the reserves had dropped by nearly $2bn, to $15.1bn last Friday - despite a large cash injection courtesy of a bail-out package co-ordinated by the International Monetary Fund.
In the aftermath of the devaluation, not only the US dollar has become more expensive for Russia's citizens. The prices of many imported goods have risen, and there are reports that some companies try to make a fast rouble by inflating prices.
To combat unfair price hikes, the government has established a hot line for Russians to report dishonest traders.
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