Russian Financial Markets Reeling: `Black Thursday' Raises Fear Abroad

Article excerpt

Russia's financial markets staggered yesterday as Moscow's deepening economic crisis provoked fears of social and political upheaval.

The ripples from what Russian state television called "Black Thursday" in Russia's stock, bond and currency markets touched markets in Europe and on Wall Street, where growing concern about Russia's problems helped drive the Dow Jones Industrial Average down 93 points.

Worries that Russia and its banks will soon run out of money and default on their debts - combined with a call by currency speculator George Soros for Russia to devalue the ruble - precipitated a jump in interest rates to as high as 210 percent in Moscow. Russia's main stock index plummeted 15 percent before the government suspended trading.

The RTS stock index recouped some losses when trading resumed, but closed down 6.5 percent at 101 - a mere point above the 100 level at which the index was launched in September 1995.

The ruble, which had held steady when Russia's crisis broke out in June, slumped yesterday as investors scrambled to get out of Russia's markets, prompted in part by fresh warnings from Wall Street's two leading credit agencies of a heightened risk of default and political unrest in Russia.

Russia's central bank at one point imposed controls on currency trading, but that only heightened fears that the situation was getting beyond control.

"The meltdown in Russian financial markets has reached the terminal phase," Mr. Soros wrote in a letter to the Financial Times. "The banking system is . . . pretty well wiped out," he said. The alternatives "are default or hyper-inflation. Either would have devastating financial and political consequences."

Mr. Soros, who has extensive holdings in Russia, urged Moscow to stop spending its dwindling reserves, which are down to $17 billion, and allow the ruble to drop by 15 percent to 20 percent.

Mr. Soros also called on the West to give Russia another $15 billion in loans, on top of the $23 billion provided last month in connection with an economic reform program administered by the International Monetary Fund (IMF).

That suggestion got a cold shoulder, though Group of Seven finance ministers said they were discussing what to do to calm Russian markets. …