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Russian stocks ease lower
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May 13, 1999: 11:02 a.m. ET
Moscow market recovers from early sell-off, calming despite political turmoil
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LONDON (CNNfn) - Russian equities closed just slightly lower Thursday, rebounding from earlier losses a day after President Boris Yeltsin ousted his third prime minister in 15 months for failing to usher Russia out of its economic morass.
But even the initial sell-off of about 4 percent fell far short of Wednesday's 15-percent freefall, when panicky investors reacted to the abrupt exit of Yevgeny Primakov by bailing out of blue chips whose value had hit a nine-month high only last week.
As Thursday trading progressed, the benchmark RTS1-Interfax index retraced lost ground to close down just 0.42 percent at 81.052. Volume paled in comparison to $17.8 million turnover level seen Wednesday.
Traders in Moscow told Reuters that the selling frenzy seemed set to subside as investors awaited further developments.
The sense of relative calm on the markets belied the frenzied political climate as Russia's Communist-dominated lower house of parliament launched debate in impeachment proceedings against Yeltsin.
Yeltsin's firing of Primakov, viewed by cynics as a ploy to forestall impeachment, places the Duma in an unsavory position. If the Duma rejects Yeltsin's replacement for Primakov -- Interior Minister Sergei Stepashin -- three times in a row, the body is automatically dissolved under the Russian constitution and a new election is called.
Vital need for economic stewards
Such an eventuality could have devastating consequences for the Russian economy. Alexander Livshits, a leading Moscow economist, warned Thursday that the economy will deteriorate quickly unless vital custodians are promptly named.
"The key figures, like the deputy prime minister in charge of finances, the finance minister, the tax minister, the economy minister and the head of the customs committee, should be appointed as soon as possible," Livshits said, in remarks carried by Reuters.
The remarks alluded to looming problems Russia may have in securing a planned $4.5 billion credit from the International Monetary Fund that is contingent upon the Duma's passage of tax reforms.
On Wednesday, World Bank president James Wolfenson told CNN he had put on hold any additional payments to Russia until the political situation had been clarified.
The crisis atmosphere notwithstanding, analysts said the latest developments are unlikely to dramatically change the equation for western businesses operating in Russia in the long term.
Anyone in Russia for the long haul, they noted, becomes quickly accustomed to the wild fluctuations in the country's political compass, along with the fleeting windows of opportunity or period of retrenchment that accompany each swing.
"Western businesses have battened down the hatches -- I don't think their lives are going to be very easy," said James Cornish, a strategist at BT Alex Brown in London who specializes in Russia.
"If you've got a Russian subsidiary, then you're not doing too badly," he added.
Legacy of a weaker ruble
Cornish and other analysts asserted that Primakov's regime offered Russians little else but a tenuous sense of stability. Under the former spy chief's eight-month tenure, pressing issues such as tax reform, corruption, and the prevalence of barter economics across wide swaths of Russia have gone largely unaddressed.
Primakov's chief legacy, some said, may be a weaker ruble that has eroded exporters' profits and made it extra difficult for western firms trying to repatriate profits. The relative rise in the price of imports has, however, given a boost to Russian companies producing domestic goods for domestic consumption, economists say.
Then there are the commodities markets, which have barely flinched at the latest bout of political unrest in Russia.
Economists tend to agree that the vagaries of Kremlin cabinets exert little, if any, influence on Russian exports of oil, gas and metals such as aluminum, nickel, palladium and platinum.
These resources account for an estimated three-quarters of Russia's export revenue. The reliance on oil money is so acute that Russia is willing to flout OPEC quotas to ensure its steady flow.
In April, according to the International Energy Agency, oil exports from the nations of the former Soviet Union totaled 3.6 million barrels per day. That was about 900,000 barrels above the April 1998 level and about a quarter of a million barrels more than the region exported the previous month, Reuters reported.
With analysts predicting a short-term rebound in oil prices to as high as $18 a barrel, Russian exporters may have even less incentive to tighten the spigot.
-- from staff and wire reports
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