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Wall Street Journal
December 14, 2001
Russia's Central-Bank Reserves Continue Slide, Weakening Ruble

MOSCOW -- Russia's central bank reserves fell by more than $1 billion (1.11 billion euros) for the second week in a row, to $36.1 billion, weakening the ruble and perplexing the market, which had grown accustomed to watching Russian reserves soar.

The central bank gave no reason for the fall, leaving analysts to speculate. Some said the central bank had spent the money to offset a recent rise in ruble-selling prompted by seasonal factors and uncertainty about the Russian economy amid lower oil prices. Other analysts said the government might have used the money to make an external debt payment.

Analysts said they weren't overly worried by the fall but would be if the trend continues. The last time Russian reserves fell by more than $1 billion in a week was August 1998, the beginning of Russia's financial crash.

Russia's reserves had been growing by an average of $1 billion a month this year amid high oil prices and strong economic growth. Then, in the last week of November, reserves fell by $1.3 billion as Russia paid off a Eurobond. Reserves fell by another $1.2 billion in the first week of December, the central bank said Thursday, without elaborating.

The ruble fell in Thursday trading to 30.19 rubles to the dollar from 30.08 rubles to the dollar Wednesday.

Alexei Zabotkin, an economist with United Financial Group in Moscow, said he believed the central bank had spent the reserves to support the ruble to combat seasonal speculators, who are selling rubles in anticipation of a yearly drop in the ruble's value that takes place during the first two weeks of January. To a lesser extent, the ruble-selling could also reflect fears that the Russian economy will suffer if oil prices continue to fall, he said.

Oil, which contributes 35% of Russia's export earnings, has tumbled to two-year lows in recent months, to about $18 a barrel, amid a global economic slowdown. Russia's federal budget next year is pegged to $18 oil but can be adjusted to cope with prices as low as $14.50. Mr. Zabotkin estimated that the ruble would weaken by only 5% to 10% next year even if oil prices fall to an average of $16 a barrel.

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