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Russia won't ask G7 for help as 'matter of principle'

Financial Post, Weekly edition, Thursday, June 4, 1998

Russia said yesterday it would not formally ask the Group of Seven industrial nations for help to see it through its financial crisis, as confidence began returning to the country's battered markets.

"We have decided as a matter of principle not to [request aid]," Finance Minister Mikhail Zadornov said after Russian share and bond prices rebounded on renewed optimism.

Although the government may be hoping to get aid without begging, Zadornov's remarks were the latest sign it is confident of riding out a crisis that has put pressure on the ruble and could cause political instability.

The financial difficulties have raised concern Moscow may not be able to meet its short-term debt obligations. G7 deputy finance ministers meet in Paris next week to discuss the situation.

Russia is counting on the International Monetary Fund releasing the next US$670-million tranche of an existing US$9.2-billion credit later this month.

Zadornov said the government would announce a new foreign borrowing program in the next few days. Financing sources being considered include the IMF, private banks and Eurobond issues.

"I can confess to you that we do not expect any money from the West other than the IMF tranche," he said.

Prime Minister Sergei Kiriyenko showed his confidence by going ahead with an official visit to France, just days before a long-arranged trip by President Boris Yeltsin to Germany.

Kiriyenko said he was not seeking foreign assistance in Paris, but is sure to discuss Russia's financial situation when he meets French President Jacques Chirac and Prime Minister Lionel Jospin. However, Yeltsin and Ukrainian President Leonid Kuchma agreed to put off talks planned for June 20.

Interfax news agency said Yeltsin had demanded the postponement until July because of the "development of the situation in Russia" and because the president wanted to check out the situation in various Russian regions at this time.

Yeltsin and the G7 fear a financial collapse that could cause serious social unrest, undermine reforms and threaten the reformers' grip on power.

Communist leader Gennady Zyuganov is already trying to impeach Yeltsin. "The executive authorities, namely the president and the government, make the country's difficult situation even worse," he said.

But many foreign governments disagree with him and glimmers of hope are emerging on the markets, signalling investors are encouraged by Russia's tough measures to end the turmoil and by the prospect of foreign aid.

Treasury bill auctions yesterday spurred optimism because investors bought the short-term government securities at reduced yields, a sign of increased confidence. Yields had soared last week as investors pulled money out of Russia.

Source: This information is provided by the Financial Post.

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