Russia's Cabinet Sacked: Markets Reel from Yeltsin's Decision

Strategic Insights -

Russian President Boris Yeltsin's decision to sack his entire Cabinet and reappoint Viktor Chernomyrdin as Prime Minister has sent shockwaves through international markets, already reeling from fears over devaluations, economic problems in Japan and Latin America, and the consequences of US bombings in Afghanistan and Sudan. The replacement of reformist Sergei Kiriyenko by Chernomyrdin has sparked concerns that Russia may default on foreign debt obligations and backtrack on reforms agreed with the International Monetary Fund. The outcome of Russia's economic policy direction will be closely watched, particularly with the announcement of a plan to convert $25 billion of short-term treasury bills into longer-term securities.

Key Takeaways:

  • The replacement of Sergei Kiriyenko by Viktor Chernomyrdin as Prime Minister has raised concerns about Russia's ability to control spending and meet foreign debt obligations.
  • President Yeltsin has promised Germany that Moscow will stick by its promises to the IMF, but analysts are sceptical of the Russian Government's ability to do so without additional funds for its $23 billion rescue package.
  • The conversion of $25 billion of short-term treasury bills into longer-term securities is a key test of Russia's economic policy direction under the new Prime Minister.
  • There are fears among foreign bankers that the new plan may introduce preferential terms to holders of securities resident in Russia.
  • The decision to sack the Cabinet and reappoint Chernomyrdin has been met with huge losses in international markets, amid fears of further devaluations and economic instability.
  • The IMF reforms agreed with Russia are at risk of being undermined by the new government's policies.

Statistics:

  • $25 billion: the amount of short-term treasury bills to be converted into longer-term securities.
  • Pounds 15 billion: the equivalent value of the $25 billion conversion in sterling.
  • $23 billion: the amount of Russia's rescue package.
  • March 1998 date (implied by the copyright notice): the date of the article's publication.

Sources:

  • The Times, 1998, copyright notice.