MOSCOW – Russia ordered its main stock exchanges closed for another day Thursday as President Dmitry Medvedev called for pouring 500 billion rubles ($20 billion) into financial markets in an effort to stabilize them.
The government is struggling to stem a dizzying plummet in share prices and restore confidence in the economy — a plummet that has revived memories of the 1998 financial collapse.
"We have sufficient reserves and a strong economy, which guarantees the avoidance of any shocks," Medvedev said in televised comments.
"There is no more important task for Russian authorities than stability of our financial system under the current circumstances. This is our top priority," Medvedev said. "The market should be given all the necessary support."
To that end, the government will pump in 500 billion rubles into the financial sector from the state budget, he said.
The MICEX exchange, where the bulk of trading in Russian stocks takes place, is now at its lowest level in nearly three years in the wake of sliding oil prices and turmoil on Wall Street.
For a second consecutive day, the financial regulator suspended trading on MICEX and the other leading index — RTS.
Meanwhile, Russian banks are facing a tightening squeeze on liquidity — accelerated by a breakdown in confidence between lenders.
"Everybody's sitting on a lot of cash, but nobody wants to lend it to anybody else," said Hawk Sunshine, head of investment banking at Metropol investment bank.
The Kremlin has struggled to restore confidence in the banking system with a wave of emergency loans, fearing a repeat of the 1998 economic crisis, which saw the ruble devalued, default on the country's sovereign debt, and widespread bank foreclosures.
Russia's situation is markedly different now — the government has huge cash reserves and virtually no debt. But analysts still warn that that disaster could loom if officials mishandle the problems.
The government pledged Thursday to lend a further 60 billion rubles (US$2.36 billion) to the country's three-largest banks — Sberbank, VTB Group and Gazprombank — in an attempt to filter money down to smaller lenders.
This comes in addition to the 1.13 trillion ruble limit offered Wednesday to the same banks for a minimum period of three months.
In another offer to struggling institutions, the Central Bank said it would slash the amount banks are legally required to set aside as reserves by 4 percentage points, potentially freeing up 300 billion rubles (US$11.8 billion).
Central Bank chairman Sergei Ignatiev called on lenders to respond sensibly to the new measures.
"We hope that banks will spend these funds not on long-term crediting or other kinds of crediting of clients, but on the maintenance of the necessary volume of their liquidity and on making settlements," ITAR-Tass quoted him as saying.