YELTSIN'S RUSSIAN ROULETTE

IT'S A SUNNY DAY and business as usual for most of the stall- holders in the Kievskaya open-air market on the banks of the river Moskva. But the market could be emptied in the next month as a storm rages through Moscow. A financial storm that is.

Like the browning leaves on the trees that surround the market and the fast approaching autumn, the changes have come quickly.

Last Monday the government knocked a third off the rouble's value, after denying for weeks that it was in any danger of being devalued.

The Central Bank of Russia had been spending more than $1 billion a week to keep the rouble inside the tight so-called "rouble corridor" that allowed it to devalue slowly against the dollar over the year. At the time of the announcement a dollar was worth 6.2 roubles, but within hours it had slumped to below 9.5.

"It's terrible," says Tamara Petrovna, flashing her gold teeth at her stall laden with grapes, melons and strawberries. "It is like 1993 all over again. Business has dropped off a lot as people don't have money."

At that time the government caused a panic by giving the public just a few days to exchange all large-denomination notes printed before 1992 for a new version of the same notes. Many people never made it to the front of raucous queues that formed outside the banks and simply lost their money.

So far this currency crisis has been more subdued. Exchange rates have stabilised and Tamara, for one, is in better shape than most.

A native of the small independent republic of Moldova, on the Ukrainian border, she can pay for her supplies in roubles, which are still more stable than the local currency, and so her prices have remained stable.

Svetlana Zhokova is less fortunate. Leaning out of the small wooden window of the wall built into the end of a new blue container that is her storefront, she passes toothpaste and imported shampoo out to the small crowd of customers milling around in the dust of the market. "Business is no better or worse than before," she says, "but the crisis is hurting us. We buy our goods from foreign companies that list the prices in dollars and we have to exchange roubles at the official rate. Already the prices have gone up 10 per cent."

Just down the road is the Kievskaya cigarette market. Here little has changed as most of the cigarettes that fill the windows of the small kiosks are smuggled in from other former Soviet Union countries where the rouble is still strong.

"No change to our business," says a young man from the Caucuses tersely.

He declines to give his name.

Scores of old women shuffle as ever from kiosk to kiosk filling their shopping bags with $8 cartons of 200 Philip Morris or Camel cigarettes to sell for a meagre profit at the entrance to the many subway stations and so supplement their pensions.

The financial crisis has left the bulk of Russia's population largely unaffected, for the simple reason that having already lost everything twice - during the years of hyperinflation and then again in the currency reform of 1993 -- they don't have anything left to lose.

"I don't keep my money in a bank," explains Tamara tempting me with a juicy bunch of grapes. "All the money I have I keep at home in dollars."

There is an estimated $40 billion in hard currency hidden away under the beds of people like Tamara and Svetlana -- double what the IMF has put aside for the Russian bailout package -- and those with hard currency savings can simply buy more roubles with their dollars.

The people that are worst hit are the emerging middle class. Moscow has been booming in the last two years and many Muscovites have good jobs with international or successful Russian companies that pay a decent wage.

Over the past year they have been indulging themselves with new washing machines or a CD player to put in the front room. Devaluation will force up the prices of these imported foreign goods.

Apart from the basic foodstuffs, nearly 60 per cent of all consumer goods in Russia are imports.

Standing among the shelves of blaring wide-screened TVs in a polyester shirt and bright blue tie is Dmitri Chernekov, the young manager of Molomen, a hi-fi store on Kutuzovsky Prospekt in central Moscow.

He says the middle classes have been hanging on to their dollars. "The crisis has really hurt our business. Usually people come in here and spend a total of $7,000 a day. This week we hardly sold anything."

The Central Bank has tried to soften the blow. It is still supporting the rouble by spending an estimated $250 million a week and the exchange rate is currently holding up at about seven roubles to the dollar.

The CBR has also ordered the commercial banks to hold the spread between buying and selling roubles to 15 per cent. But, unconvinced by these measures, the commercial banks have responded by effectively cutting people off from their money.

The rouble has been relatively stable for several years now and Russia's white-collar workers have been keeping their money in one of the commercial banks. Outside Most-Bank, one of the seven largest in Russia, a small group are huddled waiting to take their turn at the cash machine. "No dollars!" shouts a fat man in a sharp suit, throwing his hands up in disgust and walking away. The few machines that were giving out dollars last week were quickly emptied and no one has bothered to refill them.

Inside the bank, Ludmilla is standing at the back of a long but well-behaved queue. When asked why she is there she flips open her red CCCP passport to reveal a gold Most-bank card -- a card that can draw on a dollar account. "I have more than $1,000 in my account," says Ludmilla, who would not give her surname. "If I can get it out I will."

Ludmilla's chances of getting her money are dwindling. There have been no bank runs yet but commercial banks stopped selling dollars as soon as the devaluation was announced and in the last two days some have imposed a 100-rouble ($14) limit on withdrawals from rouble accounts.

"Every single bank in this country is technically insolvent," says Rory McFarker, a well respected economist from the Russian-European Centre for Economic Policy.

"When the Central Bank stops supporting the rouble then there is a very real danger of an Indonesian-style meltdown," he says.

There is going to be a massive shakeout of Russian banks in the next three months.

Experts believe that only a few of the biggest banks will survive.

Fortunately for the poorest people some 80 per cent of private savings are in the state-owned Sberbank and their deposits have been guaranteed by the government.

"Within the next three months banks are going to start to go to the wall," says Mr McFarker.

"From then on there is going to be more pain every week, for everyone."

Every bank in the country is technically insolvent,there is a very real danger of a meltdown ' '

Copyright 1998
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