Translated material
Thick line under debt past
The decision to early repay Russia's public debt to the Paris Club of creditors, taken at a government meeting last Friday, draws a bold line under the turbulent historical past of our country. Now there is little reason to discuss the terms of this deal - whether or not it was necessary to pay a premium to German creditors, whether it was necessary to first buy back bonds from private investors, since they are even more expensive to service, and only then move on to repaying debt to foreign countries, etc. Now this no longer matters, since the job is done, and therefore the Russian economy finds itself in a fundamentally different situation than it was before.
To understand this new situation better, it is necessary to give a little background on the history of Russian foreign debts. Russia acquired its first external debt in the second half of 1992, after the country joined the International Monetary Fund. As cooperation expanded, Russia's debt to the Fund grew steadily, reaching $19 billion by the end of 1998. In addition, the Russian budget occasionally borrowed money from the International Bank for Reconstruction and Development or issued its own foreign currency bonds, bringing the total amount of purely Russian debt to $50 billion. In itself, this amount does not represent anything special, and the Russian budget could easily service it, but our whole problem was that the Russian Federation had to become the legal successor to the external Soviet debt, which at the time of the last reconciliation in 1994 amounted to $112 billion And this amount placed an exorbitant burden on the very weak Russian budget and gave rise to a lot of conflicts in the 90s.
Now it no longer makes sense to discuss whether Russia should have taken on this burden entirely or whether it should have shared it with all the other republics of the former USSR, or even refused to service it altogether. The fact remains: Russia alone became the legal successor to the Soviet debt, which, on the one hand, gave it access to foreign loans, which were discussed above, and on the other, created a situation of constant financial instability, which manifested itself in all its glory in August 1998 , when the Russian government was forced to refuse to service the Soviet debt (while making payments on the Russian debt itself).
After the ever-memorable default, long and difficult negotiations began, the result of which was a compromise: part of the debt was written off and restructured by our creditors, but in return the Soviet debt was reclassified as Russian. Which meant that if any difficulties arose again in the future, and payments on external debts were stopped, then it would be a default of the Russian Federation, and not of the non-existent Soviet Union.
However, despite the fact that the negotiations were successfully completed, the problem of external debt itself did not disappear. Because even after write-off and restructuring, the Russian federal budget had to annually contribute about $15 billion in debt and interest payments. For the period 2000-2003, this amount was low, which could not but be reflected in other expenditure items of the budget - they were very small, since most of the income was diverted by external debt.
But after 2003, when world oil prices confidently overcame all conceivable and inconceivable levels of resistance, the issue of external debt moved to a different plane. It became clear that although the annual servicing itself does not pose any great difficulties, nevertheless, we need to be on the safe side, and while the situation on the world commodity markets is in our favor, we will quickly pay off this debt. After which long and difficult negotiations followed again, since our creditors really did not want to part with such highly profitable and reliable debts as Russian obligations became in 2003-2005. But they still had to part with, although not with all of them - the Russian Federation is repaying ahead of schedule only the debt to the Paris Club of creditors, but the debt to the London Club of creditors, which in 2000 was formalized in bonds traded on the market, still remains in force.
Now, after historical background, we can see what consequences a reduction in the debt burden will have for modern Russian public finances. Since at the nearest reporting date, April 1, 2006, the external public debt was $75 billion, then after the full repayment of the debt to the Paris Club in the amount of $22 billion, the balance of the debt will be equal to $53 billion. This amount is completely insignificant for our current budget, and therefore interest payments and repaying the remaining debt will not cause any budgetary strain. The first conclusion follows from this: we are no longer threatened with default, since there is simply nothing to default on. And if so, then the risk premium that foreign financial companies pledge when providing resources to private Russian borrowers will be significantly reduced. Or, what is the same thing, Russia’s credit rating will be raised .
The second conclusion follows directly from the first: since Russian government debts are no longer in danger of default, the likelihood of bankruptcy of commercial banks holding government bonds on their balance sheets is sharply reduced. As is well known, it was the default on both Soviet debt and government ruble debt issued in GKOs and OFZs that led to the bankruptcy of banks in 1998. Now this possibility is almost completely eliminated, and this increases the reliability of the Russian banking system .
The third conclusion is that the federal budget will save a lot on interest payments that it would have to bear if the debt were not repaid ahead of schedule. Well, the fourth conclusion, more political than economic, is that now the Russian political leadership has a free hand in foreign affairs, and it can afford a lot without looking at world public opinion.
Now the main question that will torment all persons who are at least somehow involved in the budget process is how and for what purposes should we now use the freed-up budget resources?