ABSTRACT
This was associated with high world energy prices, increased domestic energy production and a construction boom. Russia’s current-account surplus surged. Foreign exchange reserves grew rapidly. On February 17, 2003, the CBR lowered its refinancing rate and the overnight inter-bank loan rate was reduced to 1-2 percent: the entire structure of real interest rates fell. The demand for and the supply of practically all monetary instruments rose. Credence in Russia’s economic stabilization and potential long-term economic advance was becoming ever more manifest. A string of bonds were issued on both domestic and international financial markets. The yield on Russia’s short-term government securities declined to single-digit levels. Comparable declines were registered for equities of large oil companies.5 As noted, British Petroleum concluded a landmark merger with Russia’s TNK oil group, and major American oil companies
entered into negotiations with Yukos, Russia’s largest oil company at the time, for even larger deals.6 Gazprom, Russia’s government-controlled giant gas monopoly, reported one of its best first-half results of the past decade.7 By July 2003, the CBR’s foreign exchange reserves had reached record levels of more than $60 billion. For the first time since the collapse of Communism, Russia experienced a substantial net inflow of private capital. In early October, Moody’s Investors Services upgraded Russia’s sovereign bonds to “investment grade.”8
