MOSCOW (AP) – The Russian government predicted Thursday that the economy would grow by 1.5 percent in the first quarter, and President Boris Yeltsin praised the country for withstanding the international emerging markets' crisis.
The crisis, which primarily rocked economies in Southeast Asia, 'practically did not touch us. This is very important,' said Yeltsin. 'With a not so steady base, we nevertheless have withstood it and we intend to move forward.'
Yeltsin's remarks, and the government's growth calculation, came a day after Moody's Investors Services downgraded Russia's credit rating from Ba2 to Ba3. Moody's cited Moscow's weakening fiscal and debt position. Yeltsin shrugged off the change, saying it was not a 'catastrophe.' The president spoke at a Kremlin meeting with First Deputy Prime Minister Anatoly Chubais, the government's chief architect of economic policy. The projection that Russia's economy is growing was significant, given the international market plunge and the fact that Russia has only begun to see tentative signs of economic growth after a decade of sharp decline. Finance Minister Mikhail Zadornov said current forecasts show that both the gross domestic product and industrial production will have risen 1.5 percent at the end of the first quarter.
Zadornov said he was surprised. 'I expected that a consequence of the market crisis and the tightening of monetary policy would be a suspension of the economic recovery for about six months,' he said, according to the Interfax news agency.
He said continued stabilization of financial markets would accelerate the country's economic growth. Last year, GDP grew by 0.4 percent, the first growth since the start of economic reforms in 1992. For 1998, the government has forecast 2 percent growth.
Zadornov also announced that Russia plans to sell Eurobonds late this month.
He said the government would go ahead with road shows next week for Eurobonds denominated in Deutsche marks, Russia's first such placement since the crisis began last fall. 'We're confident of good results from the placement,' Zadornov said.
At his meeting with Yeltsin, Chubais noted that Russia's Central Bank has not depleted its foreign currency reserves through February, following what he called 'the second wave' of the international market crisis.
'There is no anxiety now about the currency market,' insisted Chubais.
Central Bank chairman Sergei Dubinin said the bank has been buying dollars steadily in recent weeks to rebuild its reserves after heavy dollar sales early this year. The total gold and foreign exchange reserves now stand at about $16 billion, he said.
'That's not a level that is dangerously low,' Dubinin told the upper house of parliament, the Federation Council. 'We've managed to stabilize the situation.' Meanwhile, in a largely expected step, the Federation Council, the upper chamber of parliament, passed the 1998 budget, sending it to Yeltsin for signature. The council voted 115 to 26 in favor of the plan, approved on March 4 by the lower house, the State Duma.
Zadornov told the council that the government was negotiating with the World Bank for a $800 million loan to support regional budgets.
The budget plan calls for spending of RUR 499.9 billion ($83 billion) on revenues of RUR 367.5 billion ($61 billion). The deficit amounts to 4.7 percent of the gross domestic product. Last year's deficit was 6.8 percent of GDP.
Inflation is forecast at 5.7 percent in 1998, down from 11 percent in 1997.
