Money transfer to Paris

Germany prevents early repayment of Russian debt due to “budgetary absurdity”

Today in the French capital, negotiations will continue on Russia's early repayment of the former USSR's debt to the Paris Club of creditors. It appears that it will never be possible to fully pay off the remaining $22 billion debt, although the club said in May that it “welcomes” Moscow’s offer for full payment. In recent days, Finance Minister Alexei Kudrin has named a different amount - creditors, he expects, will be ready to accept “only” $12 billion ahead of schedule.

“The majority of creditors have already expressed their readiness to accept Russia’s proposal,” said the May communiqué of the Paris Club. But not everyone agrees to Moscow’s main condition: debts must be repaid strictly at face value. That is, on the same terms on which last summer Russia returned the first $15 billion of the more than $40 billion Soviet debt to the club ahead of schedule.

Among the “most creditor countries” there is no Germany, to which Russia owes the most - more than $10 billion. The German Ministry of Finance does not want to receive these billions ahead of schedule, and it has good reasons for this. Firstly, it is Germany that will lose the largest amount due to the cessation of interest payments (according to the schedule, Russia must complete the payment of debts to the Paris Club in 2025). Secondly, two years ago Germany issued its own 5- and 10-year bonds (dubbed Aries) worth about $6 billion, tying their repayment to the original payment schedule for Russian debt under the Paris Club. In the event of early repayment of Russian debt, the German Ministry of Finance would have to buy back its bonds on the market, and at high market prices. And repurchase at market prices, provided that Russia repays the debt at par, does not make economic sense in comparison with repayment according to the schedule.

“Aries is a German commitment. If the Germans agree to accept our debt, then they will accept it. And the issue of Aries is a matter of the German budget,” Deputy Finance Minister Sergei Storchak, who heads the Russian delegation at today’s negotiations in Paris, said recently in an interview with Interfax.

However, Aries for Germany is not just a “budget issue”, but a real economic and political problem. The Financial Times Deutschland newspaper, characterizing the situation on the eve of the club meeting, yesterday entitled its editorial article “Russia's debts - a theater of budgetary absurdity.” The deal to issue bonds linked to Russian debt, which was organized by former heads of the German Ministry of Finance, Minister Hans Eichel and his deputy Caio Koch-Weser, is causing more and more criticism in Germany. “The sale of Russian debts itself was unprofitable for taxpayers from a long-term perspective. The fact that it is now even becoming an obstacle to early debt repayment shows the cost of a budget policy that lives for one day,” writes the Financial Times Deutschland.

The new minister, Peer Steinbrück, is thus faced with the task of correcting the “budgetary absurdity” script written by his predecessors, and this seems to be understood in Moscow. Alexey Kudrin and Mr. Steinbrück at a meeting in St. Petersburg last week within the framework of the “financial eight” agreed that Germany would definitely accept the par value of 1.3 billion euros, and the amount of 6.8 billion euros (the current value of the Aries) negotiations will continue.

“Theoretically, Germany is not against early repayment, but not in today’s situation,” says Vremya Novostey’s interlocutor in the financial department of one of the G8 countries, who observed the negotiations in St. Petersburg. “Berlin is not ready to bear losses, and Moscow does not intend to pay a premium, either explicit or hidden.” However, according to the newspaper's source, Messrs. Kudrin and Steinbrück can find a solution that will allow Russia to pay in full, if not now, but in the next two to three years. Formally, Berlin could even agree to a full repayment of $22 billion within the club and continue negotiations on a bilateral basis, especially since this is consistent with the club’s practice: its decisions are made by consensus and are of a framework nature, and specific transactions are formalized by the debtor’s agreements with each from creditors. “It cannot be ruled out that this will be agreed upon in Paris. But it would be more logical to fix the amount of $12 billion in the club’s decision. Mentioning $22 billion would give an unnecessary signal to the markets, creating the expectation that Germany or its agents are already ready to buy out the Aries,” says a Vremya Novostei source. .

Mikhail VOROBYEV, Andrey DENISOV