Call of Duty

(Photo: EPA )

No, we did not receive any Christmas indulgence from German Federal Chancellor Gerhard Schröder. Neither walking around Red Square nor riding a Russian troika helped. The hopes of the Russian authorities that during this visit they will be able to agree on the fate of the debt to the largest creditor - Germany (it accounts for over 21 of the 48.4 billion dollars of our debt to the Paris Club), and at the same time enlist its support in negotiations with other creditors about restructuring did not materialize.

The current difficulties with the Paris Club became apparent last year. When preparing the 2001 budget, funds for payments to creditors were not fully included in it - the Russian authorities until the last hoped for debt restructuring and obtaining a loan from the IMF (hopes for this evaporated two months ago).

Now the government had to admit publicly: Prime Minister Mikhail Kasyanov said that Russia would not be able to make all payments on the former USSR's debt to the Paris Club in January, and instructed Finance Minister Kudrin to begin consultations with creditors. The head of the cabinet assures that this is not yet a refusal of obligations, but a “temporary phenomenon.” We will be able to pay only from the additional budget revenues that we will receive after the first quarter, and in general “uncertainty about the sources of additional income is growing,” and the government cannot “put social stability in the country at risk” for the sake of foreign creditors.

Game of nerves
Disputes about debt problems have been going on for a long time. Some believe that it’s time to pay off debts and not get into new ones, others are in favor of twisting the arms of creditors and writing off the maximum, while others offer clever options for transferring debts into property or investment. What the authorities will choose as a result is still unknown.

On the surface there are only contradictory statements and actions. In response to admissions of financial difficulties, a letter came from the chairman of the Paris Club, Jean-Pierre Jouyer, saying that given the “favorable economic situation” in Russia, creditors hope that Moscow will fully service “all categories of its obligations.”

After this, Vladimir Putin, seeing off Chancellor Schröder, said that Russia “in any case intends and will fulfill its financial obligations.” True, with a caveat: “no one in the world is interested in putting the Russian economy in a situation where it will not be able to pay for its international obligations.” However, immediately after Schröder’s departure, it was discovered that Germany had not received 10 million marks on time to pay off its debt to the Paris Club. Creditors don’t know what to think: either this is already a default (but there was no official refusal to pay), or a delay due to a series of holidays. On the other hand, the holidays for some reason did not prevent the Ministry of Finance from paying the $118.5 million due to the IMF on January 5 according to schedule.

A few days later, the Ministry of Finance still instructs VEB to pay the Germans. Kasyanov once again explains that due to problems with the budget, Russia will not yet pay off the principal debt with creditors, but will limit itself to paying interest on loans from 1989-1990 issued for the supply of equipment and consumer goods to the USSR.

However, this situation clearly does not suit the Paris Club, and in another letter, Jean-Pierre Jouyer reminds that creditors act exclusively within the framework of the agreement signed in 1996, and the payment schedule was confirmed by the Russian side in 1999. “And we are waiting,” the head of the Paris Club said in an interview with NTV. “Our demands are simple. There is an agreement of 1996, it must be fulfilled. What we can talk about is the possibility of providing new loans to Russia in the future.”

All this commotion prompted analysts to discuss the prospects of a possible default by Russia on its debts to the Paris Club. The creditors themselves refuse to believe this. The head of the Paris Club noted that even if there are no payments or they are not made on time, Russia is unlikely to be declared bankrupt. "I wouldn't like to talk about Russia as a bankrupt state or use the term 'default'. We can't even imagine that," Mr. Jouillet said.

If we don't wash, we'll ride
According to the Chairman of the State Duma Banking Committee, Alexander Shokhin, a technical default on payments to the Paris Club may occur if Russia misses several payments. This may not happen until February, when the next payment falls, but Mr. Shokhin believes that by this time Russia will be able to pay off from the additional revenues of last year. According to the deputy head of the Bureau of Economic Analysis, Evgeniy Gavrilenkov, it would be right for Russia to pay the maximum while it is possible. Moreover, creditors have every right to demand payments from us according to schedule: world oil prices are still decent and, apparently, will rise. As a last resort, if it is not possible to quickly reach an agreement with creditors, as a one-time measure, the government can pay with money borrowed from the reserves of the Central Bank.

Most Russian experts agree that we are not yet in danger of default, and all the latest steps of the government should be regarded as an attempt to test creditors to see how willing they are to make concessions to Russia. “There is a battle of nerves, we are trying to achieve relief, but most likely the key decision will be made at the very last moment. You can consult with creditors as much as you like, but you can seriously talk about restructuring only with the approval of the IMF,” notes Mr. Gavrilenkov. The IMF mission's visit is expected at the end of January or beginning of February, and how it will end is still unknown. And time is running out. Even though it is not customary to declare a default during the negotiations, until the terms of the restructuring are approved, interest on late payments will still accrue.

“Most likely, the Europeans will agree to a short-term or shadow restructuring. That is, we will quietly agree that Russia is not paying yet, and creditors are not causing a scandal. But this will not be the final victory of our financial diplomacy, but only a postponement, allowing us to freeze the problem for a while, but not to solve it,” says Mikhail Delyagin, director of the Institute of Globalization Problems.

According to Alexander Shokhin, negotiations with the Paris Club have so far been ineffective. He believes that it is necessary to focus on non-standard restructuring schemes, in particular conversion ones, when part of the payments is repaid not with money, but with property, investments, supplies of goods, etc.

The press wrote a lot about such schemes - from the transfer of part of Russia's foreign property to creditors to the exchange of debts for shares of the largest enterprises - at the end of last year. However, the government was more to the liking of the idea of ​​converting debts into investments, which was discussed a month and a half ago at a meeting between Mikhail Kasyanov and Gerhard Schröder and was even called the “Schröder-Kasyanov scheme.” The talk was about the creation of Russian-German joint ventures, where the Russian government would invest ruble funds and, apparently, provide them with tolerable living conditions. And these enterprises would somehow pay off the German budget according to the established schedule. No details (what investments would be required from German partners, the mechanism for offsetting the amount of Russian investments against debts, terms and conditions of payment) were made public. It seems that even the negotiators themselves do not really understand this. And according to economists, the implementation of such a scheme will face a huge number of technical difficulties. “We must take into account the interests of both the lender and the borrower. The West is interested primarily in oil, gas, and electricity, but it is not advisable to give this to us,” notes Mikhail Delyagin. Even if we assume that there are at least a few projects that are equally interesting to both parties, it is unlikely that they will be able to ensure repayment of the entire amount of the debt. In addition to disagreements about the range of enterprises and industries in which investors will want to invest money, the issue of property guarantees has not been resolved in Russia. Even if the government promises potential participants in the joint venture an official “cover,” the question of ownership of the land under these enterprises remains open. Given that the Land Code in Russia cannot be adopted for almost ten years, one can hardly expect that it will be adopted overnight in order to solve even such a painful problem as external debt.

Another problem is compliance with the principle of equality of creditors. “In order to comply with it, everyone must approve the scheme, but approvals alone will take at least a year, and Russia does not have time left. It is possible to discuss these schemes as some kind of strategic goal, but for now there is no point in talking about it seriously,” says Evgeniy Gavrilenkov. “Today, talk about debt conversion is, first of all, a beautiful PR move with the goal of either driving a wedge between creditors, or showing that the government is not sitting idle,” Mr. Delyagin sums up.

And reputation?
I would like to live to see the day when the authorities finally decide on the problem of external debt. Let’s say they will decide once and for all whether to pay or not, to take out new loans or not, and if to take, then under what circumstances. In the meantime, we are watching how one government gets into debt, another agrees to write off old ones and immediately makes new ones, a third does not want to fulfill the obligations of the second and seeks restructuring, and so on ad infinitum. At the same time, everyone proceeds from momentary interests, acting on the principle “after us there’s a flood.” It seemed that the previous governments had already exhausted all ways of influencing creditors: they tried to pity them with the disastrous economic situation, they begged for vital reforms, and they frightened them with the restoration of communism. But no. We found a new argument: concern for the welfare of the people.

Summing up the government's work for the year, Mikhail Kasyanov called social stability in society, "the population's trust in the authorities and the population's faith in the future" the main achievements. The authorities want to maintain this trust at any cost, even sacrificing respect for the country.

After the 1998 crisis, Russia has not yet had time to completely wash away its reputation as a “scammer.” However, the government apparently believes that the extra spot is not of fundamental importance. It’s not clear what all the talk about a great power, which one should be proud of, is worth then. If we talk about the population, their faith in the future is as follows: our children and grandchildren should live better. And who, if not them, will have to pay off debts, including external ones?


Prime Minister Mikhail Kasyanov instructed Finance Minister Alexei Kudrin to begin consultations with the Paris Club of creditors on deferring payments. The additional revenue may not be enough, and the government does not want to jeopardize the social benefits promised to the people by taking money from the budget to pay off debts (Photo: AP )