The end of Russia's forex crisis has been scheduled for June 29. The Central Bank issued a press release announcing its decision to cancel the two separate dollar-trading sessions at the Moscow Interbank Currency Exchange (MICEX).
The practice-consisting of a morning session where exporters were obliged to sell their hard currency earnings and an afternoon session for all other market participants-was introduced by Central Bank chief Viktor Gerashchenko in October 1998 after Prime Minister Sergei Kiriyenko's reformist government was sacked and replaced with a Communist-heavy Cabinet led by Yevgeny Primakov.
The two-session scheme was part of a bid to halt capital flight prompted by high inflationary expectations and the threat of the ruble's further devaluation.
The decision to abolish the system has prompted a tidal wave of rumors. Scare-mongers again say the ruble is doomed and will not survive the next two weeks. All the more so since former Finance Minister Alexander Livshits let slip that the government plans to print more rubles this month.
The decision was made under pressure from exporters who have long complained of having to sell 75 percent of their hard currency earnings at a lower rate during morning sessions and to buy dollars in the afternoon at much higher exchange rates.
Russia's banks also vocally oppose the practice, which has kept them shut out of lucrative forex speculation.
But it was perhaps the IMF that dealt the final blow to the system when it made ending the practice one of its conditions for extending a new $4.5 billion loan to Russia.
That the Central Bank leadership has backed down is not surprising; since Primakov's recent dismissal, Gerashchenko has been under intense pressure. Rumors even circulated in the media that he might be replaced.
During "Black Tuesday" in October 1994, Gerashchenko- dubbed the world's worst central banker for his Soviet-era policies-was fired as Central Bank chairman precisely for allowing the ruble's precipitous fall.
Central Bank management believes the practice of holding two separate forex sessions on the MICEX has played a positive role in stemming capital flight. It helped stabilize the forex market, allowing the bank to purchase hard currency cheaply, thereby reducing the ruble cost of servicing the country's foreign debt.
The difference between the morning and afternoon MICEX sessions' ruble/dollar exchange rates is now under 1 percent.
To increase market liquidity and refine the procedure for setting the official ruble/dollar rate, the Central Bank has devised a system of interregional trade during unified trading sessions. Bank management believes the new system will enable the country's regions to boost each other's liquidity during forex sessions.
The plan is feasible, but there is little clarity about the ruble's near-future, or, for that matter, Gerashchenko's. He was comfortable with the Primakov government but cuts an odd figure today.
Ger-ashchenko's prospects for keeping his post depend on his ability and willingness to serve the interests of those in power. The decision to abolish the special MICEX sessions probably is an attempt to enlist support from exporters, bankers and the government-all interested in receiving loans from the IMF.
At the same time, it is well known that Gerashchenko has acted independently in the past and cannot easily be forced into always toeing the line. That suggests that he can expect to keep his post for some time to come.
Russia's banks have accumulated huge ruble assets, but at the same time, the market has no reliable financial instruments to absorb its dozens of billions of rubles. So far, the decision to cancel the special MICEX session has not caused stormy reactions on the part of banks or the public, and the Central Bank has enough levers to keep the situation under control.
On June 10, the bank ordered an increase in the mandatory reserve rate, which is expected to reduce pressure on the ruble. It has also elaborated procedures to strictly monitor the observance of forex regulations by commercial banks.
At first glance, the ruble seems safe. But the situation may change. One way to oust Gera-shchenko would be to force him-using the pressure of IMF demands-to take measures to liberalize the forex market, and afterward, to cause the ruble to fall. With elections near, the Duma would not dare support a Central Bank's chairman unable to adequately protect the ruble.