Moscow braces for a dispute with creditors
by Sergei Blagov
Moscow, 16 Jan 2001 (IPS) -- Russia is bracing for a dispute with its official creditors, at the Paris Club—over payments on $48 billion of Soviet-era debt.
Despite the windfall of petrodollars in 2000, the Kremlin formally announced plans to skip the bulk of debt payments. On Jan 9, Prime Minister Mikhail Kasyanov said Russia couldn’t make full payment on its Soviet-era debt without endangering the welfare of its citizens. Russia’s 2001 budget does not envisage payment of the Paris Club debt in full and such payment could be made only if additional budget revenue is received, Kasyanov said.
In response, the Paris Club urged Russia to fully honour its debt services, because its coffers are full with revenue from oil, gas and metals. Germany, accounting for $19 billion in Paris Club debts, has insisted that Moscow pay in full.
The Paris Club, an informal group of creditors that includes the United States and 17 other wealthy countries, meet regularly to set repayment terms for debt owed to them.
Russia’s total debt amounts to about $150 billion, mostly owed to Western governments and banks, and to the World Bank and the International Monetary Fund (IMF). This debt represents roughly three-quarters of the country’s gross domestic product (GDP), or $1,000 per every citizen. About two-thirds of that debt was incurred by the Soviet Union, and Moscow has agreed to repay it.
Russian experts claim that although Moscow accepted legal responsibility for all Soviet debt, Russia’s population is today less than half the population of the Soviet Union. They also argue that Russia’s Paris Club debt is mainly government lending, extended on non-commercial, and much of it was disguised subsidy by the German government to support its export to the Soviet Union.
Russia announced it had made a small payment to the Paris Club. On Jan 10-11, Russia transferred $22.5 million, aiming at repaying $30 million through January.
However, this payment is just a tiny fraction of the total $1.5 billion that Russia is to pay the Paris Club in the first three months of the year. As a result, Moscow is moving towards skipping first-quarter payments under an original payment schedule agreed in 1996.
President Vladimir Putin’s statements on the debt have been somewhat ambiguous. On Jan 7, Putin told visiting German Chancellor Gerhard Schroeder that Russia would pay all its international debts, but suggested that Moscow would seek new terms.
Immediately, Finance Minister Alexei Kudrin was ordered to start fresh talks with the Paris Club. The debt settlement should not “hinder Russian reforms or complicate the social situation,” Kudrin was quoted as saying by the state media.
The creditor nations “are yet to announce us in default,” deputy finance minister Sergei Kolotukhin said in an interview published Jan 15.
However, Kudrin conceded that official negotiations between Russia and the Paris Club could start no earlier than the end of February. Recent statements by Russian officials have indicated that the Kremlin hoped to avoid a default and to get a new loan from the IMF.
Russia needs to intensify talks with the IMF so as to pave the way for a deal with the Paris Club, said Mikhail Zadornov, deputy head of the Russian State Duma’s budget committee. A debt restructuring deal is very important for Russia, said Zadornov, a former finance minister.
It remains to be seen whether Russia would give in to the Paris Club pressure, or manage to secure yet another debt rescheduling deal. However, a consensus is emerging in Russia that unsustainable debt burden is deemed to be defaulted upon, while siphoning off the bulk of resources for debt service could lead to slower development and potential political instability.