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. Last Updated: 07/27/2016

Bank Head Pledges to Back Ruble

The new director of Russia's Central Bank pledged Monday to use all available hard-currency reserves to defend the battered ruble, as the government prepared to fight for a 1995 budget that it said signalled a sea-change in economic policy.


"Foreign-currency reserves, of which the Central Bank of Russia is not the only holder, will be used to defend the ruble rate," Tatyana Paramonova told Itar-Tass in her first comments on the ruble since being appointed the Bank's acting chairperson.


Paramonova's predecessor, Viktor Gerashchenko, was fired two weeks ago after allowing the ruble to collapse 845 points in a day to an all-time low of nearly 4,000 rubles to the dollar. The Central Bank had said shortly before the crash that it would no longer defend the Russian currency.


The statement also comes just days after Prime Minister Viktor Chernomyrdin gave his approval to a 1995 draft budget that he said would greatly strengthen reform "A new ideology," was how Economics Minister Alexander Shokhin described the plan that would reduce Russia's budget deficit to 8.3 percent of GDP, Izvestia reported Saturday.


The budget, which envisages bringing monthly inflation down to less than 1 percent by the end of the year, seeks to finance budget spending without resorting to inflationary state credits.


This would be achieved through financing the deficit using Russia's hard currency reserves, issuing government securities and securing foreign credits.


Foreign Trade Minister Oleg Davydov told reporters Monday that he expects $12.7 billion in foreign loans next year, with most of the money coming from lending institutions like the International Monetary Fund with which Russia is currently negotiating a $4 billion standby loan and a $6 billion currency stabilization fund. A further $3.2 billion would arrive in the form of credit lines from Western nations to pay for their imports, he said.


Davydov pointed to potential foreign-exchange earnings from selling the government's stake in energy giants like the natural gas monopoly Gazprom on Western markets.


He also underlined the importance of the draft budget's acceptance by the State Duma this week for the progress of economic reform and the fate of the government.


"This is life or death for the government," Davydov told a press conference. "If the budget is not accepted, it means a vote of no confidence in the government."


Defense Minister Pavel Grachev, however, introduced a discordant note Monday, telling Interfax that proposed military spending of 44 trillion rubles ($14.5 billion) was "clearly insufficient."


Some legislators also clearly doubt the feasibility of the budget. "The concept is fine," Alexander Pochinok, deputy head of the Duma's budget committee and a deputy economics minister, told reporters last week. "As for the implementation -- we'll wait and see."


But skepticism was not confined to Russian politicians.


Western economists talk favorably of the draft budget and have been impressed by Moscow's achievement in reducing monthly inflation to single figures for the second half of this year and in controlling the money supply, which the Finance Ministry says more than conforms with the targets agreed on with the IMF in April. But the economists say other indicators have been disappointing.


Revenue collection, in particular, has raised only 39 percent of the sums planned, according to an official government report to the Duma last week.


So while the Finance Ministry on Friday said a deal with the IMF was close, a source close to the G-7 leading industrial nations said Monday that an agreement to supply Russia with further credits was still some way off.


"The budget contains a number of hypotheses that have to be checked and it still has to be approved by the cabinet, president and Duma," he said.


Russia, the source said, is pressing the West to lend Moscow the money required to make up the budget shortfall, saying that further reforms are contingent on additional aid.


"They are putting pressure on the West to come up with the funds," he said.