**RUSSIAN ECONOMICAND FINANCIAL DEVELOPMENTS**

**FOR WEEK ENDINGNOVEMBER 5, 1999**

** **

12 NOV 99

SOURCE: US EMBASSYMOSCOW

 

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FINANCIAL MARKETINDICATORS

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1. FINANCIAL MARKETTRENDS

 

ANOTHER QUIET WEEKON RUSSIAN FINANCIAL MARKETS.

GENERALLY POSITIVEECONOMIC NEWS -- ANNOUNCEMENT THAT

THE IMF MISSIONWOULD RETURN TO MOSCOW, CBR RESERVES

CONTINUE TOINCREASE, INFLATION WAS DOWN TO 1.4 PERCENT

IN OCTOBER, GDP GREW1.8 PERCENT IN THE THIRD QUARTER,

Y-O-Y, AND CBR CORRESPONDENTACCOUNT BALANCES DECLINED

-- WAS OVERSHADOWEDBY CONTINUING POLITICAL

UNCERTAINTIES.FOREIGN BUYERS OF ENERGY STOCKS HELPED

PUSH THE RTS 2.08PERCENT HIGHER FOR THE WEEK, THOUGH

VOLUME REMAINSLOW.  ON WEDNESDAY, THE CBRINTERVENED

TO SUPPORT THERUBLE, WHICH FELL 0.7 PERCENT AGAINST

THE DOLLAR FOR THEWEEK.

 

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2. ECONOMIC ANDFINANCIAL MARKET DEVELOPMENTS

---------------------------------------------

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A. THE CBRINTERVENES TO SUPPORT THE RUBLE

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AGAINST A BACKGROUNDOF EXCESS RUBLE LIQUIDITY, THE RUBLE

CAME UNDER STRONGSPECULATIVE ATTACK THIS WEEK. DURING

THE FIRST TWOTRADING DAYS, THE CBR DID NOTHING TO

PROTECT THE RUBLEAND, PRESUMABLY, WAS INSTEAD BUYING

DOLLARS TO REPLENISHITS HARD-CURRENCY RESERVES. HOWEVER

ON WEDNESDAY ITINTERVENED TO SUPPORT THE RUBLE IN THE

MICEX MORNINGSESSION WITH NO MORE THAN USD50 MILLION,

WHICH WAS ENOUGH TOREVERSE THE TREND.  FOLLOWING THE

INTERVENTION, THERUBLE GRADUALLY FIRMED TO END THE WEEK

DOWN 0.7 PERCENTAGAINST THE DOLLAR.  THE AVERAGEDAILY

TURNOVER IN THEMORNING MICEX SESSION THIS WEEK ROSE

SLIGHTLY, TOUSD159.54 MILLION, WHILE THE AVERAGE

AFTERNOON SESSIONTURNOVER DROPPED SHARPLY TO USD60.5

MILLION.

 

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3.  BANK ALERT

--------------

 

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

GOLD AND CURRENCYRESERVES AT USD11.8 BILLION ON

OCTOBER 29, UP FROMUSD11.7 BILLION A WEEK EARLIER.

THIS FIGURE INCLUDESUSD4.6 BILLION WORTH OF GOLD AND

USD175 MILLION INASSETS DISTRIBUTED BY THE CBR AMONG

ITS FOREIGNAFFILIATES (COMPARED WITH USD242 MILLION A

WEEK EARLIER).

 

-- THE BOARD OFDIRECTORS OF THE AGENCY FOR

RESTRUCTURING CREDITORGANIZATIONS (ARCO) DECIDED ON

NOVEMBER 5 TO TAKESBS-AGRO INTO RECEIVERSHIP.  FIRST

DEPUTY PRIMEMINISTER KHRISTENKO, WHO CHAIRS THE BOARD,

SAID THAT SBS-AGROWOULD BE TAKEN INTO RECEIVERSHIP FOR

RESTRUCTURINGWITHOUT PARTICIPATION OF CURRENT

SHAREHOLDERS.KHRISTENKO SAID THAT DETAILS OF THE

RESTRUCTURING PLANWOULD BE FINALIZED WITHIN TWO

MONTHS. ACCORDING TOKHRISTENKO, THE RUSSIAN BANK FOR

DEVELOPMENT (WHICHIS NOT YET OPERATIONAL) AND

ROSSELKHOZBANK (ANEW RUSSIAN AGRICULTURAL BANK, YET TO

BE ESTABLISHED),WILL BE INVOLVED IN THE RESTRUCTURING

AS BRIDGE BANKS.

 

-- THE CBR MAY LOWERITS REFINANCING RATE BASED ON

OCTOBER INFLATIONFIGURES, CBR CHAIRMAN VIKTOR

GERASCHENKO SAID INAN INTERVIEW. GERASCHENKO SAID THAT

THE REFINANCING RATECOULD BE LOWERED BECAUSE

"THEORETICALLYIT SHOULD BE POSITIVE COMPARED TO THE

INFLATIONRATE."

 

-- THE CBR ISTIGHTENING CONTROL OVER COMMERCIAL BANKS

AND WILL REQUIRETHEM TO SUBMIT CONSOLIDATED REPORTS ON

BOTH SUBSIDIARIESAND NON-BANKING COMPANIES IN WHICH

THEY HOLD MORE THANA 20 PERCENT SHARE.  BANKS

CURRENTLY SUBMITCONSOLIDATED REPORTS ONLY FOR

SUBSIDIARY BANKS ANDCAN SHIFT RISK TO COMPANIES WHICH

ARE NOT BANKS.  THE CBR WILL REQUIRE BANKS TO INCLUDE

IN THEIRCONSOLIDATED REPORTS ORGANIZATIONS IN WHICH

THEY HOLD FIVEPERCENT.

 

-- MIKHAIL SUKHOV,DEPUTY DIRECTOR OF THE CBR

PRUDENTIAL BANKREGULATION DEPARTMENT SAID THE CBR

CONTINUES TO ACCEPTREQUESTS FROM NON-RESIDENTS TO

INVEST IN RUSSIANBANKS, EVEN THOUGH THE TOTAL FOREIGN

CAPITAL IN RUSSIANBANKS, AT 12.6 PERCENT, EXCEEDS THE

12 PERCENT LIMIT SETBY LEGISLATION. THE CBR WANTS TO

INCREASE THE LIMITTO 25 PERCENT, SUKHOV SAID.  THECBR

CONTINUES TOINCREASE RESERVES ON RISK OPERATIONS. THE

RESERVE REQUIREMENTIS 5 PERCENT FOR ALL BANKING

RESOURCES, COMPAREDWITH 3 PERCENT PRIOR TO THE AUGUST

1998 CRISIS.

 

-- THE CBR PLANS TOCHANGE THE PROCEDURE FOR THE

REPAYMENT OF TRADECREDITS TO REQUIRE THAT CREDITS MUST

BE REPAID IN THESAME CURRENCY THEY WERE GRANTED IN.

ACCORDING TOINTERFAX NEWS AGENCY, A RESOLUTION TO THIS

EFFECT HAS ALREADYBEEN SUBMITTED TO THE JUSTICE

MINISTRY FORREGISTRATION.  THE NEW PROVISIONWILL

PREVENT BANKS FROMUSING CREDIT SCHEMES TO AVOID

CURRENCY CONVERSIONPROCEDURES.  FOR EXAMPLE,

FOREIGNERS TRANSFERRUBLES FROM A T-TYPE ACCOUNT TO A

RUSSIAN RESIDENT(USUALLY AN AUTHORIZED BANK) UNDER A

CREDIT AGREEMENT,AND THE RUSSIAN BANK THEN BUYS

FOREIGN CURRENCYWITH THE RUBLES AND TRANSFERS IT TO

THE FOREIGNER'SACCOUNT IN AN OFFSHORE ZONE, OR A

REVERSE SCHEME, INWHICH A RUSSIAN BANK TRANSFERS FOREX

TO A FOREIGNER, WHOTHEN RETURNS THE CREDIT IN RUBLES.

 

-- THE CBR WILLRESUME GOLD EXPORTS IN 2000.  THECBR

DID NOT EXPORT GOLDIN 1999 BECAUSE OF EXPORT DUTIES ON

PRECIOUS METALS, ACBR SOURCE TOLD INTERFAX. ON OCTOBER

1, THE CBR RAISEDITS DISCOUNT WHEN PURCHASING GOLD

FROM 2 PERCENT TO 5.5PERCENT OF THE LME FIXING, AND

ADJUSTED THEPROCEDURE FOR QUOTING PRICES.  ATTHAT

TIME, THE BANK SAIDIT DID NOT PLAN TO EXPORT GOLD IN

THE SHORT TERM.  WITH A 5 PERCENT DUTY IN PLACE, THE

CBR SAID IT WOULDSHIP THE GOLD ABROAD ONLY IF IT WAS

ABSOLUTELYNECESSARY.  BUT THE BANK NOW SAYSTHAT THE

HIGHER DISCOUNTSHOULD ENABLE IT IN THE FUTURE TO

EXPORT GOLD WITHOUTLOSSES.

 

-- THE CBR AND THESTATE CUSTOMS COMMITTEE PLAN TO

EXTEND THE SYSTEM OFEXPORT CONTROLS TO RUBLE-

DENOMINATEDTRANSACTIONS.  A SOURCE CLOSE TOTHE CBR

TOLD INTERFAX THAT ANEW VERSION OF INSTRUCTION NO. 19,

IMPOSING CONTROLSOVER RUBLE EARNINGS FROM EXPORTS, HAS

BEEN SUBMITTED TOTHE JUSTICE MINISTRY FOR

REGISTRATION.  PREVIOUSLY, INSTRUCTION 19 ONLY APPLIED

TO EXPORT CONTRACTSPAID IN FOREIGN CURRENCY.  THE

SOURCE SAID THATEXPORT CONTRACTS DENOMINATED IN RUBLES

CONSTITUTE 20PERCENT OF RUSSIAN EXPORTS.

 

-- RUSSIAN BANKSMOVED USD550 MILLION TO OFFSHORE ZONES

IN THE THIRDQUARTER, COMPARED WITH USD1 BILLION IN THE

SECOND QUARTER, CBR DEPUTYCHAIRMAN VIKTOR MELNIKOV

TOLD INTERFAX.  FIGURES ON THE AMOUNT DEDUCTED FROM

LORO ACCOUNTS ALSOINDICATED THAT BANKS ARE MOVING LESS

HARD CURRENCY OUT OFTHE COUNTRY.  THE AVERAGE MONTHLY

DEBIT TURNOVER INTHE ACCOUNTS WAS DOWN BY USD1.4

BILLION IN THE THIRDQUARTER, OR 25 PERCENT, MELNIKOV

SAID.  HE ATTRIBUTED THE DROP IN CAPITALMOVING

OFFSHORE TO THECBR'S ACTIONS LIMITING TRANSFERS

THROUGHCORRESPONDENT ACCOUNTS IN OFFSHORE BANKS.

BANKS AND COMPANIESMOVE CAPITAL OFFSHORE MAINLY TO

EVADE TAXES, ORDURING FINANCIAL OR POLITICAL

INSTABILITY,MELNIKOV SAID, BUT NEARLY 99 PERCENT OF

THIS MONEY RETURNSTO RUSSIA.  HE DESCRIBED THIS AS

"CAPITALTURNOVER," NOT CAPITAL FLIGHT.

 

-- ON NOVEMBER 10THE CBR WILL HOLD THREE AUCTIONS FOR

7-, 14- AND 30-DAYDEPOSITS.  THIS NEW INSTRUMENT WILL

ALLOW THE CBR TOEXTRACT EXCESS LIQUIDITY FROM

FINANCIALMARKETS.  IT IS DESIGNED PRIMARILYFOR

SMALLER REGIONALBANKS, WHICH ACCOUNT FOR 45 TO 50

PERCENT OF THE TOTALCORRESPONDENT ACCOUNT BALANCES

WITH THE CBR.  BANKS THAT HAVE SIGNED GENERALAGREEMENT

WITH THE CBR, GIVINGTHEM ACCESS TO DEPOSIT

TRANSACTIONS THROUGHREUTERS-DEALING (MOSTLY LARGE

MOSCOW BANKS), WON'TBE ADMITTED TO THE AUCTIONS.

MINIMUM DEPOSIT SIZEFOR THE AUCTIONS IS JUST R5

MILLION, COMPAREDWITH R20 MILLION MINIMUM FOR REGULAR

CBR DEPOSITS.

 

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4. PRICES

---------

 

ACCORDING TO THERUSSIAN STATISTICAL AGENCY, THE CPI IN

OCTOBER ROSE 1.4PERCENT (M-O-M) OVERALL, 0.9 PERCENT

FOR FOOD, 2.2PERCENT FOR NON-FOOD GOODS AND 2.0

PERCENT FORSERVICES.  THIS IS A DECLINE FROM1.5

PERCENT INSEPTEMBER.  FOR THE FIRST TENMONTHS OF THE

YEAR, INFLATION WAS33.2 PERCENT.

 

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5.    FINANCIAL MARKET TABLES

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TABLE 1A: RUBLERATES -- MICEX SELT TRADING (NOTE 1)

 

 ------------------------------------------------

           USD-TOD   USD-TOD   USD-TOM  USD-TOM

   DATE    AVERAGE   VOLUME  AVERAGE   VOLUME

            PRICE   (USD MN)   PRICE   (USD MN)

 ------------------------------------------------

 11/01/99  26.0726     130.35  26.1904   93.80

 11/02/99  26.3661     133.17  26.3916   98.90

 11/03/99  26.2550     148.01  26.3265   50.00

 11/04/99  26.2447     158.41  26.2622   23.60

 11/05/99  26.2344     227.74  26.2700   36.20

 

TABLE 1B:  RUBLE RATES -- CASH RATES AT EXCHANGEPOINTS

(RUBLES PER USD)(NOTE 2)

-------------------------------------------------

                    PRCT CHNG           PRCTCHNG

   DATE     AVERAGE   AGAINST  AVERAGE   AGAINST

             BUY    WEEKAGO    SELL    WEEK AGO

-------------------------------------------------

 11/01/99   25.99        1.37  26.27        1.66

 11/02/99   26.23        2.26  26.52        2.71

 11/03/99   26.13        1.32  26.39        1.00

 11/04/99   26.17        0.89  26.37        0.42

 11/05/99   26.14        0.58   26.38        0.65

 

TABLE 1C:  RUBLE RATES-- CBR OFFICIAL EXCHANGERATE

 -----------------------------------------

                     PRCT CHNG  PRCT CHNG

   DATE    OFFICIAL   AGAINST    AGAINST

             RATE     WEEKAGO   09/08/98

 -----------------------------------------

 11/01/99  26.0500        1.13      53.33

 11/02/99  26.0700        1.40      53.44

 11/03/99  26.3700        2.69      55.21

 11/04/99  26.2600        1.78      54.56

 11/05/99  26.2400        0.57      54.44

 

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B. OFZ MARKET

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TABLE 2: OFZSECONDARY MARKET

-----------------------------------

 

         11.01.99  11.02.99  11.03.99  11.04.99 11.05.99

 TOTAL

 TRADE    121.161  113.721   155.862   254.200  498.509

 VOLUME

(MLN RUB)

 

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C. SHORT-TERMINTERBANK DOWN AGAIN

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SHORT-TERM INTERBANKRUBLE LOAN RATES GENERALLY

DECLINED ALL WEEK,PARTICULARLY FOR PERIODS OF LESS

THAN 30 DAYS.

 

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 TABLE 3: INTERBANK CREDIT

 --------------------------

 

  DATE                     PERIOD (IN DAYS)

  -----------------------------------------------------

                    1     7     14     30     60     90

  -----------------------------------------------------

 

 NOV 01   MIBID  12.6   12.0   14.0   20.0  23.0  25.0

          MIBOR   20.6   25.0  28.0   30.0   35.0  40.0

 

NOV 02   MIBID   10.2  14.0   18.0   19.0   20.0  22.0

          MIBOR   18.2   26.0  31.0   32.0   36.0  39.0

 NOV 03   MIBID    6.4  14.0   18.0   19.0   20.0  22.0

          MIBOR   13.4   26.0  31.0   32.0   36.0  39.0

 

 NOV 04   MIBID    6.0  12.0   16.0   19.0   20.0  22.0

         MIBOR   12.8   24.0  29.0   32.0   36.0  39.0

 

 NOV 05   MIBID    5.5  11.0   16.0   18.0   20.0  22.0

          MIBOR   12.5   23.0  29.0   31.0   36.0  39.0

 

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D. STOCK MARKET DOWNFOR THE WEEK

-------------------------------------

-----------------------

 

THE STOCK MARKET HADANOTHER VERY DULL WEEK.  THE RTS

INDEX GAINED 2.08PERCENT IN REAL TERMS FOR THE WEEK,

BUT ON VERY LOWTURNOVER. FOREIGN BUYING, MAINLY OF

ENERGY STOCKS, WASTHE MAJOR ACTIVITY.

 

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TABLE 4: RTS STOCKINDICES

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                                              DOLLAR

 DATE    RTS INDEX        PERCENT CHANGE      ADJUSTED

          (R)      NOMINAL (RUB) REAL (USD)

 

 NOV 01  569.65         -0.72       -0.56      97.25

 NOV 02  573.43          0.66       0.62     97.85

 NOV 03  566.30         -1.24       -2.40      95.50

 NOV 04  569.74          0.61       1.03     96.48

 NOV 05  589.04          3.39       3.47     99.83

 

 -------------------------

 E. INTERNATIONAL RESERVES

 -------------------------

 

 RUSSIA'S GROSS INTERNATIONAL RESERVES ASOF OCTOBER 29

 TOTALED USD11.8 BILLION, UP USD 100MILLION FROM A WEEK

 EARLIER.  THE RESERVE INCREASE INCLUDES A USD 70

 MILLION WRITE DOWN BY THE CBR OF ITSHOLDINGS IN ITS

 OVERSEAS SUBSIDIARIES, MEANING THAT THEACTUAL DOLLAR

 INFLOW WAS USD 170 MILLION.

 

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 TABLE 5: INTERNATIONAL RESERVES (NOTE 5)

 -----------------------------------------

 

 INTERNATIONAL  BLN USD  PERCENTCHG  PERCENT CHG

 RESERVES                 PREV WK     01.01.99

 

 10.29.99         11.8       0.9        -03.5

10.22.99        11.7      0.0        -04.1

10.15.99        11.7      0.9        -04.1

10.08.99        11.6      3.6        -04.9

10.01.99        11.2      2.8        -08.2

 

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F. MONETARY BASE

----------------

 

THE MONETARY BASEDECLINED FURTHER DURING THE WEEK

OCTOBER 25 -NOVEMBER 01, BY R4.3 BILLION, TO R266.8

BILLION.

 

--------------------------------

TABLE 6: MONETARYBASE (NOTE 6)

--------------------------------

 

MONETARY   BLN RUBLES    PRCT CHNG FROM       PRCT CHNGFROM

BASE                       PREV. WEEK       PREV. 4 WK AVG

 

11.01.99     266.8           -1.59                -0.1

10.25.99     271.1           -0.33                 2.4

10.18.99     272.0           2.06                 3.5

10.11.99     266.5           2.89                 1.4

10.04.99     259.0           -1.00                -1.8

 

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G. CORRESPONDENTACCOUNTS

--------------------------

 

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TABLE 7: BALANCES ONCORRESPONDENT ACCOUNTS

-------------------------------------------

 

       DATE                BALANCE (BLN RUB)

      11.01.99                     65.162

      11.02.99                    63.258

      11.03.99                    60.911

      11.04.99                    60.437

      11.05.99                    55.447

 

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H. RESERVEREQUIREMENTS

-----------------------

 

BANK RESERVESREQUIREMENTS REMAIN UNCHANGED SINCE JUNE 10, 1999

 

 

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EXPLANATORY NOTES

------------------

 

1. EXCHANGE RATES:SELT - "SYSTEM OF ELECTRONIC LOT

(CURRENCY)TRADING" - A COMPUTER-BASED OTC-TYPE TRADING

SYSTEM ORGANIZED BYTHE MOSCOW INTERBANK CURRENCY

EXCHANGE(MICEX).  USD-TOD PRICE IS THEPRICE OF THE

DOLLAR WITH THE SAMEDAY DELIVERY.  USD-TOM PRICE IS

THE PRICE OF THEDOLLAR WITH DELIVERY ON THE NEXT DAY.

MINIMUM LOT SIZE FOREACH OF THE DOLLAR INSTRUMENTS IS

USDLOO,000.  AVERAGE PRICE IS QUOTED AS THE WEIGHTED

AVERAGE OF ALL THEBIDS AND OFFERS ENTERED INTO THE

SYSTEM BY VARIOUSBANKS.

 

2. AVERAGE CASHRATES ARE QUOTED AS CALCULATED BY THE

INTER-LINEINFORMATION AGENCY THAT PROCESSES DATA FROM

OVER 500 EXCHANGEPOINTS IN THE CITY OF MOSCOW.

 

3. INTEREST RATES:THE TABLE PROVIDES MOSCOW INTERBANK

BID (MIBID) ANDMOSCOW INTERBANK OFFERED RATE (MIBOR)

B ANNUALIZED AVERAGE BID AND OFFER RATES ONSHORT-TERM

RUBLE LOANS BETWEENCOMMERCIAL BANKS.

 

4. STOCK INDICES:THE RTS INDEX, IS THE ONLY OFFICIAL

INDICATOR OF THERUSSIAN TRADING SYSTEM.  IT IS

CALCULATED EVERY 30MINUTES OF THE RTS TRADE SESSION,

STARTING FROM12:00.  IT COMPRISES 60 SHARES OF35

LEADINGCOMPANIES.  THIS SHARES AREINCLUDED IN SO-

CALLED CATEGORY"A" LISTING.  THE INDEXINDICATES OVER-

THE-COUNTER STOCKPRICES.  THE INDEX REPRESENTS THE

RATIO OF THE TOTALMARKET CAPITALIZATION OF THE SHARES

OF THE COMPANIESSELECTED FOR THE INDEX TO THE TOTAL

MARKETCAPITALIZATION OF THE SAME SHARES AS OF THE

INITIAL DATE MULTIPLIEDBY THE INDEX VALUE AS OF THE

INITIAL DATE (31DECEMBER, 1997) USING A BASE OF 100

BEGINNING SEPTEMBER1, 1995.  THE RUBLE-ADJUSTED INDEX

IS A DERIVATIVE OFTHE MAIN DOLLAR INDEX, USING THE

SAME BASE.

 

5. INTERNATIONALRESERVES OF THE RUSSIAN FEDERATION

REPRESENT THE AMOUNTOF RESERVE ASSETS OF THE BANK OF

RUSSIA AND FINANCEMINISTRY.  THOSE RESERVE ASSETS ARE

COMPRISED OFMONETARY GOLD, SPECIAL DRAWING RIGHTS, THE

RESERVE POSITION INTHE IMF AND OTHER LIQUID FOREIGN

CURRENCYASSETS.  THE LATTER INCLUDE SHORT-TERM

DEPOSITS INNONRESIDENT AND RESIDENT BANKS, BALANCES IN

CURRENT ACCOUNTS,FOREIGN GOVERNMENT SECURITIES, REPO

AGREEMENTS WITHTHESE SECURITIES MADE WITH

NONRESIDENTS, ANDOTHER LIQUID ASSETS (ACCRUED INTEREST

ON THESE ASSETS ISNOT INCLUDED).  MONETARY GOLD IS

EVALUATED AT USD300PER TROY OZ.  FOREIGN CURRENCY

ASSETS ARE CONVERTEDINTO US DOLLARS ON THE BASIS OF

THE CROSS RATES OFFOREIGN CURRENCIES TO THE USD,

CALCULATED USING THEOFFICIAL RATES OF THE RUBLE TO

THESE FOREIGNCURRENCIES, SET BY THE CBR.

 

6. MONETARY BASE(ML) IS COMPRISED OF CASH AND RESERVES

OF COMMERCIAL BANKSON DEPOSIT IN THE CBR.  IT IS THE

BASIC PART OF THEMONEY SUPPLY (M2).

 

7. LOMBARD CREDITS,DISTRIBUTED THROUGH AUCTIONS, ARE

AIMED TO PROVIDE THELIQUIDITY TO THE BANKING SECTOR.

THESE CREDITS AREEXTENDED TO BANKS ON THE BASIS OF

COLLATERAL (T-BILLS,OR MORE RECENTLY, SHARES).