The Ruble's Plunge: Who Was at Fault?

Now that the dust seems to have settled on Black Tuesday and the government has delivered its official verdict on the events, it is worth looking at a radically different explanation for the crash of the ruble than has been circulating during the past few weeks.


The official version was of course compiled by the head of the National Security Council, Oleg Lobov, and by agents of the Federal Counterintelligence Service and published in the official Rossiskaya Gazeta this week.


According to this account, a gang of commercial banks plotted to drive the ruble down, buying dollars at about 3,000 rubles and then, after sowing the seeds of panic, quickly selling them for 4,000 rubles apiece on Oct. 11.


The commission blamed the banks, and also those members of the government whose job it was to protect the population from this sort of vicious speculation. The report suggests the authorities should have taken steps to close the currency exchange, found extra hard currency to prop up the ruble or else simply coerced the commercial banks.


Instead, the official version runs, Gerashchenko, Shokhin, Dubinin, Vavilov & Co. were simply asleep on the job, failing to coordinate their activities and allowing speculators to sabotage the economy.


Clearly the ideology of the report is skewed against the free market. Under capitalism, of course, if banks want to speculate on the money markets, then good luck to them.


But more than that, it is not beyond the bounds of possibility that the report is a complete lie. The agencies that compiled it were, after all, once the official dirty tricks department of the Soviet regime.


A different version of events is outlined by Andrei Illarionov, director of the Institute for Economic Analysis and formerly head of the government's Center for Economic Reform. It has received enthusiastic backing from the Moscow Interbank Currency Exchange, the official trading center that is now being subjected to ever tighter controls.


According to Illarionov, the government deliberately drove down the value of the ruble in order to plug the budget deficit.


By the end of September the government was facing a huge cash crisis. Despite borrowing huge sums of rubles from the Central Bank in July and August, the government needed urgently to come up with trillions of rubles to meet unpaid wages.


At a meeting in Sochi in the week before Black Tuesday, Prime Minister Viktor Chernomyrdin, Central Bank chairman Viktor Gerash-chenko and a few other key ministers decided to use a trick to solve the problem, Illarionov says, and drive the currency down artificially.


On Black Tuesday, when the rate crashed 20 percent, the government sold $600 million on the private interbank foreign-exchange market, earning itself over 3 trillion rubles, according to Illarionov's version of events.


Which version to believe? Either the commercial banks were driving the ruble down and the government failed to act, or else the government itself was deliberately driving the ruble down and a few commercial-bank insiders received a tipoff and jumped on for the ride.


Illarionov himself admits there is little hard evidence to support his theory except a few unofficial leaks from closed meetings of the commission of inquiry.


The main argument in favor of Illarionov's theory is the improbability of the idea that the government would allow the ruble to fall 20 percent in one day because of "a lack of coordination of the actions of state organs," as the commission put it.


It seems rather more likely that the prime minister, the Central Bank and the Finance Ministry knew exactly what was going on, and more or less approved. At least that makes them look competent.


Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce.