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Moscow residents are hoarding thousands of dollars in safety deposit boxes, as fears intensify that Russia is teetering on the brink of a full-blown economic crisis, after the Government devalued the rouble five times in six days.
World oil prices have plunged from almost US$150 ($270) a barrel to below US$35, pushing the country to the brink of recession.
"Russia is a volatile economy at the best of times: it's heavily dependent on commodity prices - on oil and gas," said Nigel Rendell, senior emerging markets analyst at RBC capital markets.
As the public frets about a repeat of the 1998 financial crisis, when the Government defaulted on its debts, sending shockwaves through the world financial system, banks report a surge in use of safety deposit boxes in the capital.
"Russians have a massive distrust of high finance even at the best of times," said Neil Shearing, of consultancy Capital Economics.
"At the first sign of trouble, they pull their money out and stick it under the bed."
Even in 2004, the OECD estimated that up to $80 billion, most of it probably in dollar notes, was circulating outside the official banking system.
"The memories of 1998 loom large, and the rouble is taken as a bellwether of the health of the economy," Shearing said. "They're essentially trying devaluation by stealth, so that no one notices."
The currency has shed 7 per cent of its value in just five days, ending the week at 37.32 versus a euro-dollar basket. It has lost a fifth of its value since August, and Russian stock markets have lost 70 per cent of their value since May.
Moscow has blown over a quarter of its foreign currency reserves over the last five months in a desperate bid to ensure that depreciation is gradual. Dealers estimate the central bank spent US$26 billion on interventions in the last week alone.
Rendell, of RBC, added that a number of small Russian banks have made very risky bets on the country's property bubble, and may have to be bailed out by the Government. "Russia has over a thousand banks, which is probably about 950 too many," he said.
Former Soviet leader Mikhail Gorbachev yesterday joined a chorus of influential Russians criticising the handling of the economic crisis.
"Resources are directed not so much at protecting the interests of a majority of citizens as at saving the assets and property of a narrow circle of influential businessmen," said their letter, published in the Vedomosti newspaper. Oligarch Alexander Lebedev, who is buying the Evening Standard, was also a signatory.
The crisis echoes the fate of credit crunched states across central Europe. Latvia and Bulgaria have seen street protests over the economy in the past week, while Turkey is in talks with the IMF.
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