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Russia markets rocked by arrest

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  • Russia markets rocked by arrest

    Russia markets rocked by arrest

    MOSCOW, Russia (CNN) -- The arrest and jailing of one of Russia's wealthiest men sent the country's stock markets and currency reeling.

    Mikhail Khodorkovsky, head of oil giant Yukos, was seized by special forces at a Siberian airport Saturday. He was sent to Moscow and charged with a $1 billion (30 billion rubles) fraud and tax evasion.

    Yukos -- as well as Russian businessmen and politicians -- said the arrest of Khodorkovsky, whose wealth was estimated by Forbes magazine at $8 billion and has funded two liberal opposition parties, was politically motivated.

    The Russian rouble dived Monday amid fears international investors could take their money out of the country. In early Moscow trading, the rouble fell half a percent to 30.0750 against the U.S. dollar before Central Bank spent at least $500 million to support the currency.

    Russia's leading stock exchange Moscow Interbank Currency Exchange Index (MICEX) slid 14 percent at the open. Yukos crashed more than 20 percent on the MICEX and 19.6 percent on the RTS bourse.

    "The arrest is disgusting news for the market. I don't exclude that we are going to fall deeper. We are seeing very aggressive Western sales,'' Andrei Kukk, head of trading at Nikoil bank, told Reuters.

    Russian President Vladimir Putin appealed for calm in the affair but said he would not discuss Khodorkovsky's arrest with big business leaders.

    "There will be no meetings and no bargaining over the activities of the law enforcement agencies as long as, of course, these agencies are acting within the framework of Russian law,'' Putin was quoted by Interfax news agency saying.

    Some Russian businessmen have expressed fear that the government will try to re-open controversial privatizations of government enterprises that occurred in the 1990's, in which valuable state assets were bought up for a pittance.

    In comments guaranteed to be popular with average Russians voters, Putin spoke out strongly on the need for everyone to be treated equally under the law. "An insignificant clerk, and a government official, even of the highest level...a regular citizen, a mid-sized businessman and a major businessman...irrespective of how many billions of dollars are in his personal and corporate accounts, everyone has to be equal before the law."

    U.S. Ambassador Alexander Vershbow told Interfax Sunday that he was disturbed by the "escalation of tensions around Yukos" and the "selective" use of Russian law.

    Vershbow, who has met the oil magnate, said that as a result of Khodorkovsky's arrest Washington was concerned "new doubts will arise among foreign companies that work in the Russian market and also among potential investors."

    That concern was echoed by Yevgeny Yasin, a top economist at the state University School of Higher Economics.

    "Regarding the more long-term effects, this certainly will affect the dynamics of balance of payments, of capital flight," Yasin said on the Ekho Moskvy radio station.

    In the economic chaos of the 1990s, particularly after the plunge of the ruble in 1998, tens of billions of dollars were -- either legally or illegally -- sent out of the country, according to The Associated Press.

    Capital flight had recently started to decline as Russia's economy picked up, but Yasin said it had reached $7.7 billion in the third quarter of this year.

    Earlier this month, the Russian economy was boosted by the decision of the Moody's rating service to give the country an investment-grade rating.

    But following Khodorkovsky's arrest, "I think that Moody's will either have to lower that rating or lose a significant part of its credibility," Yasin said.

    The investigation into Yukos began last July with the arrest of a major shareholder. Since then, other officials of the company or its affiliates have been questioned or charged with a variety of offenses, from fraud to tax evasion to murder.

    In a statement, the Yukos oil company, which Khodorkovsky heads, called the charges "absurd," "humiliating for the Russian legal system" and "a politically motivated affair."

    The statement said Yukos' customers "should not worry about heating when the winter comes because the company" will continue to fulfill its obligations.
    "Every man has his weakness. Mine was always just cigarettes."