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. Last Updated: 07/27/2016

Reserve Judgement

The sale of gold/hard-currency reserves is the final refuge of a completely bewildered government. Exhausting these reserves is the equivalent of admitting to national bankruptcy, that is, admitting to the inability of being a state. ...

The televised announcement on Saturday [Oct. 26] by Viktor Chernomyrdin that the government of Russia will sell a part of its gold/hard-currency reserves in order to solve its vital budget problems is obviously also a display of that very "change in economic course" about which Deputy Prime Minister Alexander Livshits spoke about some time ago.

The question is of changing two of the most important indicators of Russia's economic policy: reducing the size of so-called "purely international [hard-currency] reserves" to less than the level agreed upon with the International Monetary Fund, and about the actual refusal to support the Article 8 of the IMF charter stipulating partial ruble convertibility. ...

Indeed, the violation of obligations before the IMF regarding purely international reserves was noticed for the first time in the beginning of June. Then, colossal outlays for the election of Boris Yeltsin as president compelled the government and Central Bank to lower the level of purely international reserves more than twice in only two months. The country's hard-currency reserves in April-May of 1996 were lowered from $8.7 billion to $4.3 billion, which was $300 million less than the agreed upon level with the IMF.