Ruble revival or just a hiccup?

Who said no one is a prophet in his own country?

One year ago, Vladimir Nevzorov, Russia’s maverick TV anchor (once banned from the airwaves for his extreme views) contracted with Germes, a diversified, and fairly nationalistic, Russian firm, to make a series of pro-Russian advertising spots entitled The Slav Cycle.

The most fantastic of these spots de‑ Exchange (MICE) in the year 1999: Panicked brokers feverishly dump greenbacks before the market finally closes at 70 kopecks to the dollar. In the closing scene, a lone babushka sweeps a dollar-covered exchange floor, com~ plaining of so much “rubbish."

“Tak budyet,” (So shall it be.) intones the ominous voice-over.

With this month's spectacular rise of the long-suffering ruble (see graph), Nevzorov’s spot has moved from the fantastic to the prophetic.

After closing in late April at an all-time low of 5130 to the dollar, the ruble began to gain ground in a way that it hasn’t for years. On June 14, it jumped a record 70 points against the dollar, closing at a rate of 4,766. On June 15, it leaped another 40 points to reach 4,726. By mid-June, Russian banks were offering ex‑ Change rates as low as 4550 to the dollar.

In a little more than two weeks, the dollar lost 8% of its exchange value against the Russian currency. This should be added to the fact that the dollar’s purchasing power was in decline even before the ruble caught fire: by mid-June, inflation had been running at twice the rate of dollar gains against the ruble.

For a time, Russian newspapers dedicated their front pages to the speculation and analysis of both Western and Russian financial gurus, who advocated a wide range of theories for the ruble’s return from the dead.

Some suspect that the ruble is flexing its muscles artificially, as a result of a Russian Central Bank effort to get its acting chairperson, Tatyana Paramonova, confirmed by the Duma. One well-known economic expert, academician Pavel Bunich, labeled recent events a “temporary and unreliable phenomenon.”

Meanwhile, former Prime Minister Yegor Gaidar expressed confidence that the ruble will remain below 5,000 to the dollar throughout 1995.

“Russia is finally entering a period of real economic stabilization,” said Deputy Premier Anatoly Chubais. “The implication for Russians,” he said, “is that they now won’t have to convert their rubles into hard currency to hold savings.”

Does this assertion hold water? If so, it portends significant changes in individuals’ economic behavior. Over the past few years, even Russian pensioners have become used to converting a portion of their pensions into greenbacks at Sberkasses (Saving Banks) in order to hedge against inflation. Is there now an alternative?

It is too early to say. Certainly, it doesn’t make sense to hold ruble bank deposits. The ruble’s recent strength on exchange markets notwithstanding, inflation remains stubbornly high. This, combined with very low savings interest rates means any ruble bank deposits will rapidly erode in value.

And few would advise dumping dollars just yet. Russian Economic Minister Yevgeny Yasin explicitly recommended that citizens not exchange dollars into rubles. He said that, in his opinion, exchange rates will continue to fluctuate unpredictably.

Russians aren’t the only ones feeling anxious about this double-hit to their pocketbooks. Resident foreigners (who now number about 100,000) are getting their first taste of a currency market that is no longer in their favor.

“For foreign expats living in Russia," said English securities consultant Geoffrey Cox, “a stronger ruble means they will feel the repercussions of local inflation just like Russians do."

Many foreign corporations will feel the same pain. This is particularly true for Western companies paid in rubles for their services ‑ they find themselves in a very ‘clumsy' situation.

“We receive our fees in rubles at a rate equal to one or two months of the salaries of our candidates, who are mostly paid in hard currency," said Sergei Razhiv, manager of human resources at the Penny Lane Personnel agency. “With a stronger ruble, we’ll have to raise our fees in order to survive.”

Meanwhile, to add insult to injury, a run on the ruble at local banks has caused personal cash shortages among all sectors of the local population.

And those who hoped that recent events might cause food prices to fall were on the whole disappointed. This is largely thanks to the government’s recent imposition of higher tariffs on imported food.

As stock turns over, however, some merchants’ prices may reflect the new-found strength of the ruble. Colm Fitzimons, general director of Garden Ring Supermarkets, said that he expects a stronger ruble to make his store’s goods more accessible to Russian consumers.

For now, it is a time of waiting and watching. Most people, whether Russian or foreign, are not greatly alarmed, nor are they losing a great deal of money. Few expect the dollar to be immediately unseated as the reserve currency of choice for Russians. But if this short term trend turns into a long term pattern, while it may be good for the economy, it portends difficult economic adjustments for all residents of Russia.