President Boris Yeltsin and the German Chancellor, Dr Helmut Kohl, agreed yesterday that the rapid formation of a new government in Moscow would help stabilise Russia.
During a phone call they expressed "the shared certainty that the formation of a new government in the shortest possible time will doubtless be an important stabilising factor", the Russian presidential press office said.
Dr Kohl has told Der Spiegel magazine that Russia could not expect more money from the West unless it meets conditions imposed by the IMF. Germany is one of the European states most exposed to Russia's financial crisis. German bank loans to Russia total some 54 billion deutschmark ($30 billion). The two heads of state also discussed ways of resolving the conflict in the Yugoslav province of Kosovo.
Mr Yeltsin reiterated his determination to find a peaceful solution, in co-operation with western powers, to the conflict between the Serb army and ethnic Albanians in the province.
Dr Kohl's Defence Minister, Mr Volker Ruehe, has spoken of unilateral NATO strikes without a mandate from the UN Security Council, of which Russia is a permanent member.
Earlier this month Mr Ruehe said: "A mandate from the UN Security Council would of course be ideal for NATO intervention, but naturally we have to imagine that such a mandate might not arrive quickly enough." Meanwhile, the Bank for International Settlements (BIS) announced in Basel, Switzer land, that international banks had sharply cut their exposure to Asia in the first quarter of 1998 while boosting their lending to Russia.
Although the Asian financial crisis is more than a year old, Russia's economic meltdown sparked by a devaluation of the rouble started only in August.
The credit cut-back by BIS-reporting banks to Asia totalled $34 billion between January and March in reaction to a new bout of turbulence in the region, the BIS says in its latest quarterly international banking and financial market report being issued today. The "most dramatic" retreats were from South Korea, Thailand and Indonesia, all three recipients of IMF aid packages.
Almost half of the $7 billion in new lending to eastern Europe in the first quarter of 1998 went to Russia.
On August 17th Moscow froze treasury bill payments to foreign and Russian banks on all government securities maturing before December 31st, 1999.
The government has since restructured the debt into papers that mature in three to five years, in a desperate effort to buy time to fight Russia's unprecedented financial crisis.
Jill Treanor adds from London: Burgeoning trading losses racked up by western banks as a result of the Russian crisis are fuelling talk that the mega-mergers sweeping the financial sector may come to a halt.
Among the mergers now in doubt are those in the US between BankAmerica and Nationsbank, and the $70 billion deal between Citibank and Travelers Group.
Speculation also surrounds the planned $30 billion flotation by Goldman Sachs, the investment bank, due to come to market in the autumn.
Market conditions - which have driven shares in London and New York to their lowest levels for seven months - would make any float difficult to manage. The fall in share prices would also mean that Goldman's partners would receive less from a float.
The turmoil in Russia has forced a number of banks to admit to large-scale losses. Bankers admit they are hard to evaluate, given the market for roubles and Russian debt has dried up.
Investment bank Brown Brothers Harriman says US banks have about $7.6 billion exposed to Russia - in contrast to Latin America, where they have nearly £100 billion sterling ($163 billion).