Gerashchenko surrendered
and allowed to exchange GKOs for dollars
The Bank of Russia made a decision yesterday that, in essence, is tantamount to capitulation to foreign investors. Since September, he decided to resume special auctions for the sale of foreign currency to non-residents for rubles received during the restructuring of state bonds. In other words, the Central Bank actually admitted that the Russian market is still of no interest to serious Western capital, and the Central Bank itself is not able to control “gray” currency repatriation schemes.

The special auction program, approved by the Central Bank at the end of April this year, was designed for foreigners who received rubles during the innovation of state bonds. The auction conditions were extremely strict. Dollars were 10% more expensive than on the exchange market, and no more than $50 million was put up for sale. Nevertheless, already at the first auction on April 29, demand exceeded supply three times, and at the last, on July 30, 16 times. In total, $200 million worth a little more than 5 billion rubles were sold at auctions.

The total amount of funds received by non-residents from the novation of government securities, according to the Central Bank, is 20 billion rubles. Moreover, it turned out that there was nothing special to spend it on, and it is impossible to withdraw it abroad - the funds are in a special account, which is strictly regulated by the Bank of Russia. This was done in order to encourage foreigners to invest money in Russian assets. At first, the Central Bank hoped that non-residents would buy shares, then corporate bonds (for example, LUKOIL and Gazprom). But the stock market is in a deplorable state, and foreigners do not like bonds because their circulation period is too long (4-5 years).
And non-residents began to come up with “gray” schemes for buying dollars. From time to time, the Central Bank discovered and closed one or another channel, but new ones immediately appeared. Recently, the Central Bank was forced to sell up to $150 million a day from its foreign exchange reserves on the MICEX in order to satisfy a record volume of requests for the purchase of currency and contain the growth of the dollar.
The director of the open market operations department of the Bank of Russia, Konstantin Korishchenko, described the current situation to Kommersant as follows: “It is obvious that non-residents have an excess of ruble funds compared to the investment opportunities that they have, primarily due to the lack of currency hedging capabilities. And if this money not to sterilize, then sooner or later there will be a desire to convert them into currency, even if not in a completely legal way.”
Yesterday, the Central Bank gave up and announced that it would resume selling currency at special auctions starting in September. This decision is quite logical - why engage in “operational investigative” activities and at the same time feed speculators, when you can earn an extra $9 million from the difference in rates by selling currency outside the exchange market. The auctions will be held on September 24 and October 29, 1999, with $50 million each being offered for sale.
However, holding new auctions does not solve the systemic problems of the Russian financial market. The passivity of non-residents clearly indicates that they have nowhere to invest money in Russia yet. And the latest concessions from the Central Bank are about the futility of command methods of regulating the market.

PETER Kommersant-RUSHAILO

Newspaper "Kommersant" No. 156 dated 08/31/1999, p. 7

Authors:

Peter Rushailo