Sifting Through the Ruble Rubble

The day after Russia's dramatic devaluation of its currency, lines began forming at numerous money exchange offices on Tverskaya, Moscow's main shopping street. People were selling rubles for American dollars, but the near panic of the day before had subsided into weary acceptance.

"In this country you can expect anything to happen," says Irina, a middle-aged translator.

The population's patience has taken a beating over the past few weeks. After promising, loudly and repeatedly, that there would be no devaluation, the government suddenly announced Aug. 17 that the Central Bank was "widening the corridor" in which the ruble would be allowed to float by one third.

But few were fooled by the economic jargon. "Let's call a spade a spade," began an article in the influential business paper Kommersant-Daily.

In addition to the de facto devaluation, the government is, in effect, defaulting on its debt. It has announced that it will "reorganize" its runaway T-bill market. In a bid to keep "liquidity" in the system, it has also declared a 90-day moratorium on repayment of hard-currency debt to foreign creditors.

Effects at home

Ordinary Russians are still trying to sort through the economic newspeak, and their initial reactions were mixed.

Among the most likely effects will be a 20 to 30 percent rise in prices on imported goods - which, for Moscow at least, means more than 60 percent of food products and close to 50 percent of consumer items such as refrigerators and televisions.

But some Muscovites are not convinced. "Prices are already going up," grumbled Vasily, a truck driver. Officials "can stand there and say 'we will do this, we will do that' but in reality [they] can't do anything."

There were a few signs that stores were preparing for markups, but most analysts predict that the inflation crunch will not come for several weeks.

"It will take a month for it to become really noticeable," said Andrei Piontkowsky, director of Moscow's Center for Strategic Studies. "And then the protests will begin. People have forgotten what it is like when prices rise constantly. They have become used to stability, to being able to save up for a car or go to Turkey once a year. This will hit the emerging middle class pretty hard."

Mr. Piontkowsky predicts public discontent will put pressure on the government, and a rash of resignations will result.

The Communist opposition is calling for President Boris Yeltsin to step down, saying that he has "devalued himself" with his latest moves.

"Yeltsin said there would be no devaluation," says Communist leader Gennady Zyuganov. "Now comes this blow to the poorest. Prices will jump. All but the biggest banks will collapse. This is final bankruptcy."

While Mr. Yeltsin is unlikely to go, he has squandered whatever political capital he had left. Yeltsin has been coy about his plans for the year 2000, when the next presidential poll comes around. This ends any thoughts of a third run, says Piontkowsky.

There will, however, be some shuffling in the Kremlin cadres. Alexander Livshits, deputy head of the presidential administration and a longtime presidential economic adviser, submitted his resignation. There are reports that Prime Minister Sergei Kiriyenko and Central Bank Chairman Sergei Dubinin offered to go, but were told to stay by the president.

The turmoil will make it all the harder for Yeltsin to carry out the tough economic measures needed. According to Piontkowsky, the prime minister himself may be chosen as scapegoat. Mr. Kiriyenko is under attack both from the Communist-dominated parliament, or Duma, and Russia's powerful financial "oligarchs."

"Kiriyenko will be out in a week," insisted Piontkowsky.

Banks as victims

The banking sector, where the oligarchs are concentrated, has all but collapsed. Standard & Poor's credit rating service has given six Russian banks their very lowest rating, "N.M." for "not meaningful." Four of the six are among the group of 12 leading banks pooling their resources in an attempt to stay afloat. They will need a helping hand from the government, though, if they are to survive.

"It all depends on the central bank," says Al Breach, an economic analyst at Moscow's Russian-European Center for Economic Policy. "They will have to decide how to bail out the banks, and which ones to keep in place."

The "shadow" economy was quick to react to the crisis, with a black market already springing up for hard foreign currency. The Central Bank may be forced to bring its official rate into line with the street value, if it hopes to capture those dollars.

Through all the government's rhetoric and bluster, one truth emerges. "People will be poorer," says Mr. Breach.

But given the state of its economy, Russia had very little choice, he added. "They've done the right thing, they've given themselves a chance. It will take cooperation from the Duma, a lot of political will, and tough action. If it works, it will stave off radical devaluation and inflation.

"But they are not out of the woods."