Kremlin, Moscow – Conference Room
The high ceiling, adorned with gilded patterns, and the heavy oak panels lining the walls reflected the glory of the Russian Empire in all its splendor.
Around the long, polished mahogany table sat President Ivanov at the center, flanked by Prime Minister Yevgeny Popov and Central Bank Governor Andrey Sinichin.
The air in the room, wide and imposing as it was, felt heavy, mirroring the gravity of the situation Russia now faced.
President Ivanov, usually flushed from his fondness for alcohol, now appeared tense, his usual jovial demeanor replaced by sharp attentiveness. He spoke first.
"So you're saying the bond auction failed because no one wanted to buy?"
Governor Sinichin, a broad-shouldered man, was sweating profusely even though summer was still far off. With a troubled expression, he answered,
"Yes. Contrary to expectations, less than ten percent of the bonds were subscribed."
At that, Prime Minister Popov, seated across the table, suddenly interjected.
"Could it be because we didn't offer sufficient incentives to encourage people to buy the bonds?"
Sinichin's forehead veins throbbed at the blatant accusation from the very person responsible for worsening the situation. He wanted to snap back, blaming the failure on Popov's mismanagement, but he restrained himself.
"The offered interest rate for the auction was fifty percent. Even with such an exorbitantly high rate, the bonds didn't sell for other reasons."
"And what reasons would those be?"
President Ivanov asked sharply. Sinichin hesitated, glancing nervously before answering cautiously.
"Although the bonds offer high returns… there is far greater concern that the Russian economy could collapse at any moment."
Before the words even left Sinichin's mouth, the hot-tempered President Ivanov slammed his palm onto the table, shouting.
"Collapse? What kind of absurd nonsense is that? Russia going bankrupt?!"
Reflexively shrinking in his seat, Governor Sinichin hastily offered a defense.
"Of course, I believe there is absolutely no chance of that happening, but foreign investors see things differently."
Sinichin cast a subtle glance toward Prime Minister Popov across the table.
"With the U.S. talks having collapsed and the IMF loan negotiations also failing, Russia's CDS premiums have soared to record highs."
Credit Default Swaps, or CDS, are financial derivatives designed to reimburse investors if a bond issued by a country or company defaults. In other words, a rising CDS premium indicates that the risk of default for the underlying bond has grown.
"What's even more serious is that, with the failure of the bond issuance, the outflow of foreign investment—which was already accelerating—will intensify even further."
"Hmm."
President Ivanov let out a low, contemplative grunt. Observing him, Sinichin continued in a grave tone.
"At this rate, our foreign exchange reserves could be completely depleted in less than four months."
"I was under the impression that we still had fourteen billion dollars just a few days ago. Am I mistaken?"
Ivanov narrowed his eyes at him, and Sinichin explained.
"That's correct. However, roughly 4.5 billion dollars of that is tied up in gold bars, which cannot be quickly liquidated. So in reality, our actual cash reserves amount to only 9.5 billion dollars."
"...."
"Considering that, with bond issuance blocked, over two billion dollars in foreign currency is leaving the country each month, even with maximum effort we might barely hold on for four months. It's unlikely we can make it past year-end."
"Ugh…"
President Ivanov let out a groan, arms crossed over his chest.
Governor Sinichin, noticing Ivanov's deeply furrowed expression, spoke in a grave tone.
"If we don't act quickly to stabilize the situation, it could truly lead to a state of national bankruptcy."
But Ivanov frowned in displeasure.
"Are you telling me that I'm supposed to kneel before the IMF and those Yankee bastards and beg?"
"You may not like it, but at this point, there's no other option."
Sinichin tried once more to persuade the clearly unhappy president.
"Hmm…"
Just as Ivanov's face showed signs of deep thought, Prime Minister Popov suddenly interjected.
"True, the situation is unfavorable, but if we comply fully with the demands of the U.S. and IMF, it will further depress our domestic economy and plunge our political situation into chaos. Especially since we've already raised taxes excessively to reduce the fiscal deficit. If we push for more tax hikes now, it won't pass through the Congress controlled by the Communist Party, and public discontent will explode."
Popov's voice grew more animated as he continued.
"Above all, if we appear weak and back down now, it will deal a severe blow to your authority, Mr. President."
President Ivanov's proud expression stiffened.
Seeing Popov deliberately interfere while Sinichin tried to manage the crisis, Sinichin shot him a stern glare.
"What will you do if this makes the situation irreversible?"
"Who said we should keep opposing to the end?"
Popov replied annoyingly, as if it were nothing.
"If we show weakness too early, we'll be forced to concede. By holding firm and then retreating at the right moment, we can preserve your dignity while minimizing losses."
Sinichin frowned deeply, exasperated.
"Didn't I just say that at this rate we can barely hold on for four months?"
"Because we have a way to secure more dollars," Popov said abruptly.
Sinichin stared at him, incredulous.
President Ivanov, leaning forward with a troubled expression, asked,
"Is that really true?"
"It is."
Prime Minister Popov, receiving everyone's attention, answered confidently.
"Tell me, what method do you have in mind?"
Governor Sinichin, equally curious, kept his lips tightly pressed together as he stared at Popov.
With a relaxed air, Popov looked at both of them and spoke.
"We sell the 470 tons of gold bars stored in the treasury."
"...!"
"That way, the immediately usable foreign currency wouldn't be $9.5 billion, but $14 billion. It would give us plenty of time to negotiate with our counterparts."
Popov shrugged as if he had accomplished something remarkable, which made Sinichin frown deeply.
"Not one or two tons, but 470 tons. Disposing of that much gold is difficult, and even if we sell it, the price would drop and we'd suffer huge losses."
It was only natural that the market price would fall if the supply for sale increased.
President Ivanov, also showing a disappointed expression, was met with Popov's self-satisfied smile.
"If a single buyer purchases all 470 tons at the international market price, there won't be any problem, will there?"
Sinichin's eyes widened, and he asked again.
"All 470 tons, at full market price without a discount?"
"Yes."
"Ha! That's ridiculous."
Sinichin scoffed, clearly skeptical, but President Ivanov, clinging to a glimmer of hope, asked,
"Where is this buyer?"
Popov straightened his shoulders and answered.
"The Eldorado Fund."
President Ivanov tilted his head.
"A fund, not the central bank of another country?"
"Yes."
President Ivanov narrowed his eyes suspiciously and asked,
"Can such a fund really pay $4.5 billion?"
"It may be an unfamiliar name, but it's managed by a major player on Wall Street. They handle hundreds of billions of dollars, so paying for the gold bars will be no problem at all."
"Ho. There really is such a fund?"
As if he were the spokesperson for the Eldorado Fund, Prime Minister Popov spoke confidently. Ivanov turned his gaze toward Governor Sinichin, silently asking if this was true.
"It hasn't been widely known for long, but the fund first made its name investing in Mexican pesos, and more recently, during the Asian financial crisis, it earned enormous profits without a single failed investment."
Governor Sinichin replied reluctantly. He didn't want to side with Popov, but he couldn't lie either.
"Moreover, it's well known as an IT venture investor, having made tens of billions of dollars through IPOs. The fund's owner is so skilled that George Hamilton of Quantum Fund once said he was not as good."
Popov quickly added the point, seizing the opportunity.
Even if Ivanov was not very familiar with finance, he knew of George Hamilton and the Quantum Fund, who had once brought the Bank of England to its knees, and he let out a small impressed sigh.
"Truly an extraordinary individual, it seems."
"They've even promised to pay $500 million upfront upon signing the contract, so there's no reason to doubt their ability to pay."
"Oh. I see."
The news of the $500 million advance made President Ivanov's expression noticeably brighter.
"Selling the gold bars to secure additional dollars should give us some breathing room. What do you think?"
"…It should give us about a month or two of leeway."
Governor Sinichin replied reluctantly, adding just in case,
"Even so, we've only bought ourselves a little time. If the underlying problems aren't solved, we can't avoid the worst-case scenario."
Despite reiterating the gravity of the crisis, unfortunately, President Ivanov was only pleased that he could put out the immediate fire at hand.
"Popov, if we bow here as you suggest, we'll just be dragged around by them forever. Russia can't show that kind of weakness."
"Absolutely, sir. If we sell off a large portion of the gold to secure dollars, they may realize that pushing us further won't be easy and could abandon their hardline stance."
"Hahaha. Exactly."
Governor Sinichin shook his head subtly as he watched Popov flatter the president and Ivanov smile in approval. He couldn't help but wonder if the U.S. and IMF would really respond as expected.
"Even if we sell the gold, we'll still need more dollars. Push ahead with issuing government bonds again."
Having regained his confidence, President Ivanov spoke.
"Even offering 50% interest, there was no demand last time. I doubt a reissue would achieve the desired result."
Seeing Sinichin's skeptical reaction, Popov interjected again.
"Then just offer a higher interest rate."
Sinichin restrained a sigh and furrowed his brows.
"With default concerns running rampant, adding 10–20% more won't attract buyers."
"Then why not double the interest? That should tempt buyers, right?"
Sinichin, stunned by such an absurd suggestion, let out a hollow laugh.
"That would mean paying interest equal to the principal. The losses would be enormous."
In truth, it was an impractical idea even before considering the losses—who issues bonds at 100% interest?
At that moment, President Ivanov openly sided with Popov.
"The situation is urgent. If we issue the bonds this way just this once, it shouldn't be a big problem."
"The losses would still be enormous. Moreover, it could send the wrong signal that default is imminent," Sinichin protested, looking distressed.
But Ivanov pressed on firmly.
"It's only this one time. Once negotiations with the U.S. and IMF conclude, outside concerns will vanish immediately. So just do as I say."
His heavy, imposing gaze bore down on Sinichin.
Seeing a leader trying only to paper over the problem instead of solving it made Sinichin's chest tighten. Yet he could not disobey Ivanov. Reluctantly, he parted his lips and responded,
"…Understood."