**RUSSIAN ECONOMICAND FINANCIAL DEVELOPMENTS**

**FOR WEEK ENDINGDECEMBER 24, 1999**

** **

28 DEC 99

SOURCE: U.S. EMBASSYMOSCOW

 

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FINANCIAL MARKETINDICATORS

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1. FINANCIAL MARKETTRENDS

 

POST-ELECTIONEUPHORIA, AND PERHAPS A BIT OF PRE-

MILLENNIUM MADNESS,OVERTOOK RUSSIAN FINANCIAL MARKETS

THIS WEEK.  THE STOCK MARKET SOARED, WITH THE RTSINDEX

GAINING JUST OVER 25PERCENT.  TRADE VOLUMES WERE VERY

HIGH IN THE FIRSTHALF OF THE WEEK.  MICEX VOLUME SETA

YEARLY HIGH, WHILEVOLUME ON THE RTS REACHED ITS

HIGHEST POINT SINCEBEFORE THE AUGUST 1998 FINANCIAL

CRISIS.  THE FINANCE MINISTRY SUCCESSFULLYPLACED A NEW

GKO ISSUE THIS WEEK,WHICH PUSHED THE GKO MARKET UP AS

WELL.

 

INTERNATIONALRESERVES INCREASED BY USD200 MILLION AND

TOTALED USD12.0BILLION.  THE MONETARY BASE WENT UPBY

1.58 PERCENT OR R4.5MILLION, REACHING A NEW HIGH OF

R289.2 BILLION.  THAT, COMBINED WITH NEARLY R70 BILLION

IN RUBLE LIQUIDITYIN BANK CORRESPONDENT ACCOUNTS, MAY

MEAN MORE PRESSUREON THE RUBLE, WHICH FIRMED SLIGHTLY

THIS WEEK TO26.72/USD ON FRIDAY.

 

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2. ECONOMIC ANDFINANCIAL MARKET DEVELOPMENTS

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-- THE TAX MINISTRYAND THE CBR CRACKED DOWN ON BANKS

WHICH ACCEPT TAXPAYMENTS ON BEHALF OF CLIENTS BUT FAIL

TO TRANSFER THEFUNDS WITHIN THREE DAYS.  FIVEBANKS

ARE PROHIBITED FROMTRANSFERRING TAX PAYMENTS FOR

CLIENTS UNTIL THEBEGINNING OF 2000 AS A PENALTY FOR

DELAYING PAYMENTS.

 

-- THE GOR ANNOUNCEDIT HAS TRANSFERRED R102 MILLION TO

PAY OFF ARREARS TOGOVERNMENT EMPLOYEES IN CHECHNYA AND

TO INCREASE SUPPLIESAND MACHINERY.

-- FLEMINGSINVESTMENT BANK ANNOUNCED IT MADE USD193.3

MILLION INTRANSACTIONS ON THE RTS DURING THE FIRST 11

MONTHS OF THE YEAR.

 

-- THE FINANCEMINISTRY ANNOUNCED THAT THE GKO

RESTRUCTURINGPROCESS MAY BE CONTINUED IN 2000. AS OF

DECEMBER 24, 1999THE FINANCE MINISTRY HAD PROCESSED

GKO RESTRUCTURINGREQUESTS TOTALING R10.8 BILLION.

 

 

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3.  BANK ALERT

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-- THE CENTRAL BANKOF RUSSIA (CBR) REPORTED RUSSIA'S

GOLD AND CURRENCYRESERVES AT USD12.0 BILLION AS OF

DECEMBER 17, ANINCREASE OF USD200 MILLION FROM THE

WEEK BEFORE.

 

-- THE GOR AMENDEDITS LOAN AGREEMENTS WITH THE WORLD

BANK AND EBRD FOR AFINANCIAL INSTITUTIONS DEVELOPMENT

PROJECT. THEAMENDMENTS REDISTRIBUTE USD35 MILLION TO

THE AGENCY FORRESTRUCTURING CREDIT ORGANIZATIONS

(ARCO) AND USD10MILLION TO THE CBR TO PAY FOR REVIEW

OF ITS RESTRUCTURINGPROCEDURES AND IMPROVING THE LEGAL

FRAMEWORK FOR BANKINGOPERATIONS, ACCOUNTING METHODS,

BANKING SUPERVISIONAND REPORTING.

 

-- ARCO ANNOUNCED ITHAS SIGNED A FRAMEWORK AGREEMENT

WITH EBRD CONCERNINGEBRD'S PARTICIPATION IN THE

RESTRUCTURING OFRUSSIA'S CREDIT INSTITUTIONS.

 

-- IN THE EIGHTMONTHS SINCE ARCO BECAME OPERATIVE THIS

APRIL, THE AGENCYHAS SPENT OR RESERVED R7.5 BILLION

FOR 14 PROJECTSINVOLVING 19 BANKS IN 10 REGIONS OF

RUSSIA.  ARCO PRESIDENT TURBANOV TOLD A PRESS

CONFERENCE THAT NOOTHER COUNTRY HAS TRIED TO

REHABILITATE ITSBANKING SYSTEM WITH RESOURCES

EQUIVALENT TO ONLY0.2 PERCENT OF GDP.

 

-- AFTER THE THIRDSHARE ISSUE BY THE RUSSIAN NATIONAL

COMMERCIAL BANK(RNCB), ARCO ANNOUNCED IT NOW OWNS 46.1

PERCENT OF THEBANK'S SHARES.  THE BANK OF MOSCOWHOLDS

50.1 PERCENT.

 

-- ARCO'S BOARD OFDIRECTORS HAS DECIDED TO CREATE

SELKHOZBANK, A NEWAGRICULTURAL BANK, OUT OF THE

SKELETON OF THE NOW-DEFUNCTSBS-AGRO BANK.  IT WILL

ALLOCATE R327MILLION FOR SELKHOZBANK'S CHARTER

CAPITAL.  ARCO'S BOARD ANNOUNCED PLANS TO SET UP

SELKHOZBANK DURINGTHE FIRST 6 MONTHS OF 2000 AS A

WHOLESALE BANK WITHNO BRANCHES.  ITS OBJECTIVE IS TO

HAVE THE BANKOPERATIONAL IN TIME FOR THE SPRING

PLANTING SEASON.

 

-- ON DECEMBER 22,VNESHTORGBANK (VTB) INCREASED ITS

CHARTER CAPITAL BYR14 BILLION TO R22.1 BILLION.  WITH

THIS CAPITALINCREASE, VTB SAYS IT IS FINANCIALLY ABLE

TO TAKE CONTROL OFTHE SO-CALLED "ROSZAGRANBANKS," THE

OVERSEAS BANKSCONTROLLED BY THE CBR, PROVIDED THE NEW

DUMA AMENDS THE LAWON THE CENTRAL BANK AS THE CBR HAS

PROPOSED.  98.1 PERCENT OF VTB ITSELF IS OWNED BYTHE

CBR.

 

-- PRESIDENT YELTSINVETOED A BILL TO ESTABLISH A

PRIVATE BANK DEPOSITGUARANTEE SYSTEM.  IN HIS VETO

MESSAGE, YELTSINSAID THAT THE BILL IN ITS CURRENT FORM

HAD INTRINSICCONTRADICTIONS AND NEEDED TO BE REVISED.

 

-- VNESHECONOMBANKANNOUNCED IT EXPECTS A PRETAX PROFIT

OF R600 MILLION FOR1999.  ITS PRETAX PROFIT WAS

REPORTED AT R441.96MILLION ON OCTOBER 1.

 

-- THE CBR WON ANAPPEAL AGAINST A COURT RULING THAT

ITS WITHDRAWAL OFTHE OPERATING LICENSE OF MEZHKOMBANK

WAS ILLEGAL.  THE MOSCOW DISTRICT FEDERAL ARBITRATION

COURT OVERTURNED THEEARLIER RULING OF THE MOSCOW

ARBITRATION COURTAGAINST THE CBR.

 

-- THE U.S.-RUSSIAINVESTMENT FUND (TUSRIF) ANNOUNCED

IT BEGAN INSEPTEMBER TO INVEST USD130 MILLION IN A

MORTGAGE LENDINGPROGRAM IN RUSSIA.  TUSRIF HAS

ALLOCATED USD30MILLION TO ST. PETERSBURG, AND THE

REMAINDER WILLMAINLY BE INVESTED IN MOSCOW. TUSRIF HAS

CHOSEN THREE MOSCOWBANKS - INVESTSBERBANK,

MEZHPROMBANK ANDINVESTMENT BANKING CORPORATION - AS

ITS PARTNERS IN THISPROJECT. FUND MANAGEMENT ALSO IS

CONSIDERING MORTGAGELENDING IN TYUMEN AND OTHER

RUSSIAN REGIONS.

 

B TATYANA ARTIOMOVA, CBR DEPUTY CHAIRMAN INCHARGE OF

ACCOUNTING ANDCLEARING OPERATIONS, RESIGNED FROM THE

CBR TO TAKE APOSITION AT SBERBANK.

 

 

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4. PRICES

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ACCORDING TO THERUSSIAN STATISTICAL AGENCY, INFLATION

DURING THE PERIODDEC.1-14 TOTALED 0.6 PERCENT. DURING

THE WEEK OF DEC.07-14,PRICES GREW BY 0.3 PERCENT.

 

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5.    FINANCIAL MARKET TABLES

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A. THE RUBLE FIRMSFOR THE WEEK, BUT STARTS WEAKENING

BY THE WEEKEND

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THE NEARLY R70BILLION IN RUBLE LIQUIDITY IN

CORRESPONDENTACCOUNTS WITH THE CBR CREATED A HIGH DEMAND

FOR DOLLARS THISWEEK.  HOWEVER, FOR MOST OF THEWEEK,

THIS DEMAND WASOVERWEIGHTED BY AN INCREASED SUPPLY FROM

MASSIVE SALES OFHARD-CURRENCY EARNINGS BY EXPORTERS.

THE MICEX"TOM" RATE FLUCTUATED IN THE RANGE R26.71 -

R26.743 PERUSD.  THE CBR INTERVENED HEAVILY,BOTH BUYING

AND SELLING HARDCURRENCY AND PROBABLY FURTHER INCREASED

ITS RESERVES.  BY FRIDAY THE SURGE IN HARD CURRENCY

SUPPLY ENDED, ANDTHE RUBLE IMMEDIATELY WEAKENED BY MORE

THAN 4000 POINTS INTHE MORNING SESSION.  STILL, FORTHE

WEEK, THE"TOD" RUBLE FIRMED BY 113 POINTS (0.04

PERCENT).  AVERAGE MORNING SESSION TRADE VOLUMEWAS A

RECORD HIGHUSD225.44 MILLION.  AVERAGEAFTERNOON SESSION

VOLUME WAS AMODERATE USD105.36 MILLION.  NEXTWEEK,

WITHOUT SUPPORT FROMEXPORTERS, THE RUBLE WILL LIKELY

DEPRECIATE AT AFASTER PACE.  ALREADY THIS WEEK,DOLLARS

WERE BEING SOLDFORWARD WITH A JANUARY 10 DELIVERY FOR

R27.4 - R27.42.

 

THE MICEX ANNOUNCEDTHAT EFFECTIVE DECEMBER 27 MINIMUM

LOT SIZE FOR DOLLARTRADING WILL BE USD1 THOUSAND INSTEAD

OF CURRENT USD100THOUSAND.  MINIMUM LOT SIZE FOREURO

TRADING WILL GO DOWNFROM 10 THOUSAND TO ONE THOUSAND

EUROS.