The Russian ruble and Venezuelan bolivar are currencies which have become the new battlefields in the volatile and spreading financial turmoil gripping the entire globe.
In spite of billions of dollars spent attempting to prop up Russia’s economy and financial markets, the bottom finally fell out on August 13. Despite furious denials and promises to the contrary by Russian President Boris Yeltsin, the ruble has now been devalued by 34 percent, and Russia has stopped paying a huge section of its foreign debt which will likely never be repaid.
In an abrupt and drastic maneuver, Yeltsin has fired his newly-appointed 36-year-old prime minister, Sergei Kiriyenko, and his entire team of reformers after 100 days on the job. He was replaced by 60-year-old Viktor Chernomyrdin whom Mr. Yeltsin had dismissed in March, and who is the man most responsible for the current desperate state of Russia’s economy. International investors now fear they may lose a large portion, if not all, of their investments in Russia. Economic gloom and doom are settling like a dark and foreboding cloud over the Russian bear.
Equally shocking from the other side of the world, Latin American markets have begun unraveling in the face of continuing onslaughts of plunging global currencies and disemboweled commodity prices. Venezuela is fighting devaluation of its bolivar in a valiant but seemingly futile effort with few options and even fewer hopes of succeeding. Even the Venezuelans themselves are abandoning their own currency as quickly as they can buy U.S. dollars, sensing that the edge of the precipice is near for the bolivar.
Venezuela is one of the world’s major exporters of oil to America. The first half of 1998 has seen oil prices and other commodity values come crashing to earth, leaving countries like Venezuela with greatly diminished oil revenues to stave off the economic wolves.
Other global markets like Mexico and Brazil, and even far-away Australia and Canada, are also now suffering tremendously because of the scent of blood in the nostrils of currency speculators, the piranhas of the worldwide monetary system.
Russia and Venezuela desperately need foreign capital, and a lot of it, but many foreign investors have already pulled their money out of Russian and Venezuelan stocks and bonds. International credit is nowhere to be found, not even from the IMF, which had recently put together a $22.6 billion bailout for Russia. In an obvious panic mode, interest rates are now rising dramatically to attract foreign capital, but Venezuelan rates have already exceeded 60 percent and Russian yields on domestic government treasury bonds have soared to nearly 150 percent. Such severe inflation may well now finish the kill.
Next month in The Trumpet, look for an article about how America’s exposure to the devastating effects of foreign capital flight, like in Russia and Venezuela, implodes an economy, leaving nothing but a skeleton and vultures picking the meat off the bones.