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Russia's Financial Woes Worsen

Russia's leadership was thrown into question Thursday as sources told CBS News that President Boris Yeltsin signed a resignation letter - a report the Kremlin publicly denied.

A government spokesman countered word of a resignation move, saying, "It is just impossible that such a thing could have happened without us telling you." CBS News said there was no clear indication if or when Yeltsin's undated resignation order would take effect.

The development cames amid demands by the Communist-led parliament that Yeltsin agree to share more powers with lawmakers in exchange for quick approval of Viktor Chernomyrdin as prime minister. The legislature could act on Chernomyrdin early next week, possibly setting the stage for the orderly or at least constitutional departure of Yeltsin.

The spokesman said the president spent the day at the government residence 60 miles outside of Moscow. Yeltsin spoke with Chernomyrdin earlier Thursday, and had spent the rest of the day preparing for next week's summit with U.S. President Clinton, the spokesman said.

Yeltsin was scheduled to return to the Kremlin on Friday and meet with the Bulgarian president, he added.

Yeltsin's close aide, Sergei Yastrzhembsky, met with the Communist Party leader Gennady Zyuganov on Thursday to discuss the new government. The Communists, the biggest party in the State Duma, are calling for a coalition government, and have threatened not to approve Chernomyrdin unless Yeltsin relinquishes some of his sweeping powers.

"The presidential camp is now aware of what is happening in the country and now that they understand the reality, consultations may become more productive," Zyuganov told reporters after his meeting with Yastrzhembsky.

The political posturing came on a day of further financial turmoil. Russia's central bank canceled all foreign currency trading for the second straight day Thursday, leaving analysts and ordinary Russians predicting economic disaster for the country. The chaos in Russia spread to other nations, with many stock markets around the world posting loses of more than 3 percent.

Meanwhile, political parties and trade unions stepped up their demands that Yeltsin resign, and anxious and uncertain citizens rushed about hoping to trade their increasingly worthless rubles into hard currency such as U.S. dollars.

"No one really knows what is going on. That is the problem," said Nick Page, a Russian economic analyst at Banque Paribus in London. "The cancellation of trading for the second day was the final confirmation that the central bank has thrown in the towel with the currency."

The central bank suspended trading on the Moscow Interbank Currency Exchange (MICEX) minutes after it opened as it became apparent there again were no buyers for rubles except the bank itself. The central bank later announced that trading would not resume Friday.

On Wednesday, the ruble pluged almost 70 percent against the German mark to 7.8 marks per ruble, giving an effective ruble-dollar rate of 13.8. The Central Bank has kept the official exchange rate at Tuesday's official rate at 7.86 rubles per dollar, with the mark rate standing at Wednesday's closing price.

Street trading Thursday reflected the chaos on the official bourse. Exchange points around Moscow set rates at between 8 rubles to 10 rubles per dollar. In other towns across Russia's 11 time zones, 1 dollar was garnering between 7 rubles and 12 rubles, according to Russian television reports.

"The ruble has ceased to exist," said a European businessman who manages a multimillion-dollar publishing group in Russia.

Page said it was too early to tell where the real exchange rate would settle. "I'm not sure you can say were it will stop or where the bottom will be at this point. At this time the only real buyer [of rubles] is the central bank," he said.

The currency crash came after last week's announcement that the government would allow the ruble to devalue by as much as one third to 9.5 rubles per dollar by year end. The previous corridor had been set between 5.5 rubles and 7.15 rubles. The government also announced it would restructure some $32 billion in short-term Treasury bond debt, resulting in losses for domestic and international bond investors. Since then, the ruble has fallen more than 40 percent against the U.S. currency.

Russian and world markets were shocked again when Yeltsin on Sunday fired the the young government of Sergei Kiriyenko and nominated well-connected veteran politician Chernomyrdin in his place.

Western investors viewed the these announcements as the last straws for Russia's financial markets, which have steadily declined since the Asian turmoil started last fall. "I'm ready to get out," said one equity market investor who estimated his losses this year at close to $15 million. "Get me on a plane back to New York."

The financial crisis until last week has had little effect on ordinary Russians, who don't own stocks or bonds or mutual funds. But the mood in Moscow has turned as the threat of inflation looks more and more like a reality. Itar-Tass reported prices of imported food have risen as much as 45 percent in the past few days.

Russian banks, which Page says are virtually all insolvent due to the latest cash crunch, have established currency and withdrawal controls making it increasingly hard for Russians to get their meager savings out of the banks. Those who are successful receiving their funds in rubles only, not hard currency.

"I deposited $500 two weeks ago - all in dollars, and they are telling me I can only get out 200 rubles at a time," said a 45-year-old single mother who was standing in line at her bank for two hours before receiving even this scrap of news. "How can I buy my boys school supplies if this keeps up?"

"This is not a crisis, t's a collapse," said the man standing next to her on the rainy, gray streets of downtown Moscow. "First we don't get wages paid on time and now our savings are gone."

Page said the lack of any official news about monetary or political policy was adding to the disquiet. "The single most dire thing is that the central bank hasn't made a clear statement about what they will do or what their policy will be. In fact, we haven't seen it from anyone." he said. "We've had a totally insufficient response from the central bank."

In the halls of parliament the chorus seemed to be growing for the central bank chief to be replaced. "We categorically spoke of the need to replace central bank chief Sergei Dubinin," said Alexei Alexandrov, a deputy of Chernomyrdin's political party, about a meeting he had with the acting premier.

Such news would be another blow for investors and the country, economists said, because it would probably mean an end of Dubinin's tight monetary policy.

Written By Margaret Coker, CBS MarketWatch Moscow Correspondent

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