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Tuesday, August 25, 1998 Published at 20:30 GMT 21:30 UK

Business: The Economy

Rouble plunges as Russia tackles debt

Victor Chernomyrdin: Main priority to sort out the financial mess

Russia's newly appointed prime minister, Viktor Chernomyrdin, has announced a new debt restructuring plan as part of an effort to avert the country's financial collapse.

Nomura International's Andrew Crawford: 'Confidence is not going to be there for some time'
Viktor Chernomyrdin has announced the restructuring of $40bn of domestic debt: with the aim of making it less costly to service.

Under the new scheme, investors who bought short-term Russian treasury bills and expect to get their money back within two years may have to wait until 2006 before the new style bonds mature.

Analysts on Wall Street have described Mr Chernomyrdin's announcement as a non-event; saying the package was a raw deal for investors and below what the market expected.

The package follows the rouble's biggest one-day fall in four years, together with the partial merger into two groups of leading Russian banks to help them survive the currency crisis.

The BBC's Alan Little reports from Moscow on the mammoth task facing Mr Chernomyrdin
The rouble plummeted 10% in trading on Tuesday - its biggest one-day plunge in nearly four years.

The currency closed at 7.86 to the dollar. Trading had to be suspended twice when the Central Bank was overwhelmed by demand for dollars.

The sharp fall in the rouble is now threatening the entire banking system and several leading banks annouced mergers in an attempt to head off failure.

[ image: World markets have been hit hard by the Russian crisis]
World markets have been hit hard by the Russian crisis
Russia has been struggling to contain the crisis which began in early summer when the stock market went into a deep skid and hit a low point when the central bank effectively devalued the rouble last week.

The Russian market has been wracked by the global emerging markets crisis and the drop in oil prices - its main export.

Last week the government effectively defaulted on its short-term debt, announcing that holders of $40bn (£25bn) in treasury bills - $11bn of it held by foreigners - would have to accept a new repayment plan.

Prime minister admits blame

The re-installed Prime Minister Viktor Chernomyrdin accepted partial responsibility for the crisis.

He said: "Serious mistakes have been made, in particular by myself when I was prime minister."

He said he was ready to take tough decisions to resolve his country's financial mess.

He said: "Objectively a situation could arise where the authorities will be forced to take the most difficult of measures to resolve the financial and economic situation."

However in an interview with a Russian newspaper he vowed to pay off wage and pension backlogs and construct a proper industrial policy.

[ image: Russian banks with dollar loans are in trouble]
Russian banks with dollar loans are in trouble
He has already shelved the radical austerity package of the outgoing government, and pledged to shore up the precarious, bloated Russian banking sector.

Some analysts said his plans would fuel inflation and could jeopardise IMF loans to the Russian government, heaping pressure on an anaemic rouble.

Nevertheless the Russian stock market earlier strengthened slightly on the back on the rise in Gazprom shares.

The shares in world's biggest gas producer, once run by acting Prime Minister Chernomyrdin, were up 90% and the RTS index ended up 2.3%, to close at 88.38.

However the tide of economic woes continues to swell in Russia.

The French petroleum company Elf Aquitaine announced on Tuesday its decision to abandon a proposed alliance with Russia's Sibneft worth $500bn because of instability in Russia and low oil prices.

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