Experts Urge Cut in U.S. Rates to Boost Russia

A chorus of international financial experts urged a lowering of U.S. and European interest rates Wednesday to help Russia navigate its rapidly worsening crisis and advocated an assortment of remedies, such as letting Russians spend the American dollars they have stashed in their mattresses.

But as the ruble went into free fall and the Russian economy neared collapse, it was clear that any fix for Russia has to go far beyond propping up the currency.

As world markets increasingly reacted to the sense of outright chaos, with the Russian government appearing all but dysfunctional, the most hopeful sign may be that “finally a sense of national crisis is taking hold and a coalition government may be formed,” said Jeremy Azreal, director of Rand Corp.’s Center for Russia and Eurasia.

Stocks continued their downward spiral early today in Tokyo and elsewhere in Asia on the heels of Wednesday’s declines in Europe and the United States--most of it blamed on continued turmoil in Russia.

The Nikkei Stock Average tumbled 2.8% in the first 30 minutes of trading today, and ended the morning session at 14,460, down 2.73%.

Despite the global anxiety, Western nations publicly took a hard line against any additional aid to the Russians, as officials from Washington to Paris to London called on Moscow to push through the reforms demanded of it by the outside world.

“There are no shortcuts to restoring market confidence, and the next steps are up to the Russians,” Barry Toiv, deputy White House press secretary, said from Edgartown, Mass., where President Clinton is vacationing.

Washington’s partners in Europe also put the responsibility for pulling Russia back from the financial abyss squarely on Moscow’s shoulders.

In Paris, French President Jacques Chirac urged Moscow to push through economic reforms, saying international support would work only if reforms were implemented decisively by the new government of acting Prime Minister Viktor S. Chernomyrdin.

The British Treasury said it was closely monitoring the Russia crisis and was in contact with other members of the Group of Seven top industrial nations. But there appeared to be no plans for a meeting of G-7 leaders to discuss the crisis.

More than one financial expert said the most useful immediate remedy the West could offer would be to lower interest rates in Europe and the United States. The suggestions specifically included calls for the U.S. Federal Reserve Board to lower U.S. rates.

Such steps would increase economic activity worldwide, advocates say, and enable the world’s growing roster of troubled nations--including Russia--to ease the interest rates they have been keeping high to defend the value of their currencies.

Meanwhile, economists worked overtime dissecting Russia’s problems.

Currency expert Steve H. Hanke at Johns Hopkins University proposed “dollarization” for Russia--allowing its people to use the U.S. dollar as everyday money for buying bread and onions. The Russian people have an estimated $40 billion in U.S. dollars, secreted in proverbial mattresses and cash drawers.

But every idea seemed to have a downside. Avinash Persaud, the London-based head of currency research for J. P. Morgan & Co., said Russia has too few direct links through trade and investment to the U.S. economy for use of the dollar to be a remedy.

Such influential figures as financier George Soros are proposing that Russia back its money through a currency board that would maintain the ruble’s value pegged to a foreign currency or basket of currencies, as the value of Hong Kong’s dollar is tied to the U.S. dollar.

Persaud said the Russian currency could be pegged to the German mark or the euro, the forthcoming European currency.

But by definition, an orderly currency board mechanism requires economic and political stability, which is now lacking, other experts said. Similar proposals for Indonesia earlier this year were abandoned as that country drifted into chaos.

Most worrisome to outsiders was the threat that Russia could find itself isolated from the world economy as international financiers shun Moscow, much as happened to Latin American nations in the 1980s. That would deny Russia the capital it so desperately needs to achieve stability while it seeks to reform the economy.

“It would be a tragedy if Russia were to be isolated from the world economy,” said John Tedstrom, a strategic analyst with Rand in Washington who is about to join the U.S. National Security Council.

Fear of unrest in Russia underlaid the economic analysis of most experts Wednesday.

Contingency plans should be made to combat hunger in Russia, said Rand’s Azreal, “because hunger in Russia could well set off unrest in a country of massive nuclear, chemical and biological weapons.”

Times wire services contributed to this report.