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. Last Updated: 07/27/2016

Central Bank Reserves Fall to $8Bln

Foreign debt repayments and efforts to support the flagging ruble have sent Russia's hard-currency reserves plummeting to $8.18 billion, the Central Bank said Tuesday, dashing hopes it will be able to prop up the national currency in coming months.

The Central Bank's total reserves, including less liquid gold assets, stood at $12.48 billion at the end of November, a fall of $1 billion, or 8 percent, over the month. The Central Bank has lost 30 percent of its reserves since January.

"The Central Bank's reserves are all committed to debt servicing," said Peter Westin, an economist with the Russian European Center for Economic Policy, said at a news conference Tuesday.

In November, Russia paid debts to the Paris Club, the International Monetary Fund and a Eurobond coupon.

But James Fenkner, an economist with Troika Dialog, pointed out that there was a gap between the amount Russia spent on debt servicing and the drop in Central Bank reserves.

The debt repayments accounted for about $700 million. A further $300 million must have been spent on half-hearted attempts to prop up the ruble in foreign exchange trading, analysts said.

Before the Asian financial crisis erupted in October 1997, the Central Bank had reserves of almost $25 billion, but almost half the money was frittered away on supporting the ruble.

Last week, the bank reportedly spent between $50 million and $100 million a day last week on interventions in foreign exchange trading on the Moscow Interbank Currency Exchange. After a week-long slide, the ruble held steady at 20.43 to the dollar Tuesday, but it is expected to resume its fall shortly.

"I expect the ruble to have surpassed the 21.5 rubles-to-the-dollar mark by the end of 1998," Westin said.

This figure is significant because the current version of the draft 1999 budget puts the ruble's value next year at 21.5 to the dollar.

In December, Central Bank reserves will be depleted by another $352 million as three Eurobond coupons fall due. On Dec. 2 Russia paid $216 million to the London Club and more IMF and Paris Club debt must be met.

Russia has sought to restructure its Soviet-era debt, but until that happens, it must keep up payments.

The Central Bank could try to increase reserves by printing some rubles and selling them on MICEX, as it did in October, but there are other uses for freshly printed money that the government believes are more important. They include the elimination of wage arrears.

The Finance Ministry said Tuesday it will appropriate over 6 billion rubles this month in order to pay back wages to most state workers, Interfax reported. Debts to the scientific community, law enforcement agencies and servicemen are to be paid in early 1999.

Westin pointed out that Russia's monetary base expanded by 20 percent since August - below what economists expected, but with hard-currency reserves being earmarked for debt servicing, even moderate emissions could prove inflationary.

Ultimately, in the absence of foreign financing, Russia will have to choose whether to defend the ruble or let it fall and save its reserves.