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Friday, September 11, 1998 Published at 17:37 GMT 18:37 UK

Business: The Economy

Rouble rallies amid doubts over new PM

A Moscovite woman trades her roubles for dollars

The Russian rouble resumed its rally on Friday as the acceptance by Parliament of Yevgeny Primakov as prime minister eased the country's political deadlock.

However, there are new fears about the economic reform process as the new prime minister looks to former Soviet colleagues for economic inspiration.

The currency has extended its gains to trade around 11 to the US dollar, but doubts over the new government's commitment to reform has left financial market traders uneasy.

The markets were heartened by the decision by President Boris Yeltsin to nominate Yevgeny Primakov for prime minister following Viktor Chernomyrdin's withdrawal of his nomination.

Mr Primakov has been accepted in a vote by the Communist-dominated lower house of parliament, the State Duma.

President Yeltsin has since signed a decree confirming Mr Primakov's appointment.

Unknown quantity

The solution to the political crisis brings new financial uncertainty as the new prime minister has very little economic experience.

The process of market reform is under question with Mr Primakov having promised senior economic positions in his government to two Communists.

[ image: Yevgeny Primakov]
Yevgeny Primakov
And in a speech to the Duma, he foreshadowed state intervention in industry to lift production.

The two advisers, Viktor Gerascshenko and Yuri Maslyukov, held economic posts during the Soviet era.

Gerashchenko headed the Soviet central bank, later the Russian central bank and oversaw a period of hyper-inflation in 1992-93.

He also addressed Parliament, saying that a controlled printing of currency was unavoidable but that he intended to defend the rouble, protect savings threatened by a generalised banking collapse and aid the troubled banking sector.

Traders have been sceptical in recent days that the rouble can hold onto its gains of this week which has seen it appreciate from a low of around 20 roubles to the dollar, 70% below its levels of early August.

They believe Russia's central bank could have intervened to prop up the currency.

Debt delay

Fears of large-scale defaults on debt repayment have resurfaced after the Russian government delayed payment of interest on a German loan.

In response, Russia stated on Friday that it would honour all other sovereign debt commitments.

A German government agency said only part of a Dm800m ($475m) sovereign debt payment due at the end of August had been paid.

Meanwhile, the head of the leading banking and industrial group Interros, Vladimir Potanin, has warned it may default on its foreign debt repayments if the terms cannot be eased.

[ image: Viktor Chernomyrdin withdraws his Premiership bid]
Viktor Chernomyrdin withdraws his Premiership bid
He said commercial banks would be unable to meet their debt obligations and called for foreign creditors to agree to radical renogotiation of loan terms.

The government previously said that banks and other creditors had until September 18 to swap their short-term government bonds for other longer term debt instruments.

The new bonds will have three to five year maturities with yields of 20% to 30%. They will also be issued in dollars, with lower interest rates.

Rouble rollercoaster

This week the rouble has shown its first rises since August 17, when it was unpegged from the dollar.

The rouble had been in freefall with inflation reaching astronomic heights as the street rate fell well below official values for the currency.

Prices rocketed an average of 35.7% in the first week of September alone, threatening hyper-inflation.

This week's rally came as banks found themselves short of dollars and were forced to buy roubles to repay debts and overcome a liquidity shortage.

The Russian stock market, where trade has been all but frozen, managed to rise with the RTS index ending up almost 5% to 64.6.

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