The ruble recorded its biggest one-day drop on the Moscow currency market Thursday, falling to a new low of 309 to the dollar.
Financial experts said that the government, despite recent talk about a return to tight monetary policy, was unwilling to take the unpopular steps necessary to bring inflation under control and stop the ruble's slide unless it received support from the parliament.
The ruble dropped 55 points in trading on the Moscow Interbank Currency Exchange. It has fallen in value by almost half since Aug. 20, when the rate was 162. 6 rubles to the dollar.
Sergei Osenmuk, deputy director of the exchange, said that people were afraid that inflation and a collapse of the financial system would leave them holding increasingly worthless rubles.
"People are willing to buy dollars at any price", Osenmuk said.
The government is faced with raising taxes, cutting social spending or ending subsidies to loss-making defense and agricultural companies if it wants to correct its growing budget deficit and bring the ruble under control.
It will also have to control Central Bank credits to firms through commercial banks and stop credits issued by the former Soviet republics, which have added an estimated 70 billion rubles to the money supply.
Sergei Aleksashenko, economic adviser to the Industrialists Union, a powerful political lobby that backs gradual reform, said: "The government has done nothing because it does not want to risk unpopular measures before the parliamentary session is over. I would do the same in their position".
When President Boris Yeltsin addresses lawmakers next week, he will seek backing for his reform program and formal confirmation of acting Prime Minister Yegor Gaidar.
Banking sources said that the primitive nature of the financial system means that any policy changes to correct the easy money policies of the last three months would take months to filter through to affect inflation or the exchange rate.
Alexei Ulyukayev, Gaidar's spokesman, told a press conference on Thursday that the government and the Central Bank were planning certain actions to stop the fall of the ruble but did not elaborate.
He blamed the Central Bank for causing inflation by printing 640 billion rubles in the months of July and August, more than in the 30-year period from 1961 to 1991.
In August, the gap between government revenue and expenses was 60 percent higher than expected. The total deficit now stands at about 12 percent of gross domestic product, almost double the limit requested by the IMF.
Osenmuk of the Moscow currency exchange found a hopeful sign in the decline in the volume of trading.
"At least the total sum of rubles offered was only 13. 7 billion, compared to between 15. 7 and 18. 3 billion rubles on the previous three trades", he said.
Western companies trying to sell to the Russian market for rubles continue to suffer from the ruble's instability.
One Western currency banker who declined to be named said that the currency fall was having a dramatic effect.
"Consumer product companies have changed their whole way of doing business", he said.
He said that companies suffer when they deliver goods at a set ruble price because the ruble's value falls before they can exchange for dollars. Their efforts to exchange rubles are hindered by delays in the Russian settlement system.
Alexander Andyelkovic, general manager at Unilever, which sells its Omo detergent and Lux soap for rubles, said, "We foresee the continued decline of the ruble in erratic steps, and that makes it difficult for everyone dealing in the ruble economy".
He added, "We respond simply by raising our prices, so it's not a question of how much we can tolerate. But how long will the consumers be able to absorb the higher cost? "
Alexander Potyomkin, head of the Central Bank's hard currency division, told a press conference last week that the bank was now intervening in about 30 percent of the trading to help build confidence in the currency market, not in the currency itself, "so there is always a reasonable supply of dollars".
The Central Bank's intervention, he said, was not targeting a specific exchange rate for the ruble.
He said the ruble would continue to fall until the government resolved the problem of property ownership.
"People will not stop sending their money overseas until they have real estate and productive resources to invest in", he said.
Larry Wilson of the Arthur Andersen accounting and consulting firm said, "I personally predicted 500 rubles to the dollar, but that's probably a conservative estimate".
Financial experts said that the government, despite recent talk about a return to tight monetary policy, was unwilling to take the unpopular steps necessary to bring inflation under control and stop the ruble's slide unless it received support from the parliament.
The ruble dropped 55 points in trading on the Moscow Interbank Currency Exchange. It has fallen in value by almost half since Aug. 20, when the rate was 162. 6 rubles to the dollar.
Sergei Osenmuk, deputy director of the exchange, said that people were afraid that inflation and a collapse of the financial system would leave them holding increasingly worthless rubles.
"People are willing to buy dollars at any price", Osenmuk said.
The government is faced with raising taxes, cutting social spending or ending subsidies to loss-making defense and agricultural companies if it wants to correct its growing budget deficit and bring the ruble under control.
It will also have to control Central Bank credits to firms through commercial banks and stop credits issued by the former Soviet republics, which have added an estimated 70 billion rubles to the money supply.
Sergei Aleksashenko, economic adviser to the Industrialists Union, a powerful political lobby that backs gradual reform, said: "The government has done nothing because it does not want to risk unpopular measures before the parliamentary session is over. I would do the same in their position".
When President Boris Yeltsin addresses lawmakers next week, he will seek backing for his reform program and formal confirmation of acting Prime Minister Yegor Gaidar.
Banking sources said that the primitive nature of the financial system means that any policy changes to correct the easy money policies of the last three months would take months to filter through to affect inflation or the exchange rate.
Alexei Ulyukayev, Gaidar's spokesman, told a press conference on Thursday that the government and the Central Bank were planning certain actions to stop the fall of the ruble but did not elaborate.
He blamed the Central Bank for causing inflation by printing 640 billion rubles in the months of July and August, more than in the 30-year period from 1961 to 1991.
In August, the gap between government revenue and expenses was 60 percent higher than expected. The total deficit now stands at about 12 percent of gross domestic product, almost double the limit requested by the IMF.
Osenmuk of the Moscow currency exchange found a hopeful sign in the decline in the volume of trading.
"At least the total sum of rubles offered was only 13. 7 billion, compared to between 15. 7 and 18. 3 billion rubles on the previous three trades", he said.
Western companies trying to sell to the Russian market for rubles continue to suffer from the ruble's instability.
One Western currency banker who declined to be named said that the currency fall was having a dramatic effect.
"Consumer product companies have changed their whole way of doing business", he said.
He said that companies suffer when they deliver goods at a set ruble price because the ruble's value falls before they can exchange for dollars. Their efforts to exchange rubles are hindered by delays in the Russian settlement system.
Alexander Andyelkovic, general manager at Unilever, which sells its Omo detergent and Lux soap for rubles, said, "We foresee the continued decline of the ruble in erratic steps, and that makes it difficult for everyone dealing in the ruble economy".
He added, "We respond simply by raising our prices, so it's not a question of how much we can tolerate. But how long will the consumers be able to absorb the higher cost? "
Alexander Potyomkin, head of the Central Bank's hard currency division, told a press conference last week that the bank was now intervening in about 30 percent of the trading to help build confidence in the currency market, not in the currency itself, "so there is always a reasonable supply of dollars".
The Central Bank's intervention, he said, was not targeting a specific exchange rate for the ruble.
He said the ruble would continue to fall until the government resolved the problem of property ownership.
"People will not stop sending their money overseas until they have real estate and productive resources to invest in", he said.
Larry Wilson of the Arthur Andersen accounting and consulting firm said, "I personally predicted 500 rubles to the dollar, but that's probably a conservative estimate".
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