Russia's Mess Gets Messier

Russia plunged deeper into economic crisis on May 27 as a series of financial blows rocked markets. The Central Bank tripled interest rates, to 150%, in a bid to reassure investors and head off a run on the ruble. President Boris N. Yeltsin's increasingly desperate administration ordered oil companies to cough up millions of dollars in back taxes. But as analysts called for an international rescue package to stop the rot, the International Monetary Fund was holding up a $670 million payment due to Russia under a $9.4 billion loan.

Near panic reigned in Moscow financial markets as the government's funding woes worsened. In one shock, the auction of a 75% stake in state-owned oil company Rosneft failed to draw a single bid at the $2.1 billion minimum. Moscow set a 25% premium over the $1.6 billion to $1.7 billion valuation made by Dresdner Kleinwort Benson. Later, it said it would be ready to accept a lower price at another auction to close in mid-July.

But the government is struggling to raise cash and service domestic debt on a regular basis. For the third straight week, its Treasury-bill auction failed to raise enough to roll over about $750 million of maturing debt. The Finance Ministry said it had to buy two-thirds of the $500 million of bills sold.

Russia's public finances are now in a vicious downward circle. The government can't collect enough taxes or cut spending fast enough to meet conditions on its existing IMF package. That holds up loan installments that could steady the situation and creates an even wider financing gulf to bridge.

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