Translated material
With a sense of accomplishment
Russia has paid off the Paris Club and is preparing to become a creditor country
Russia no longer owes a cent to the countries of the Paris Club of creditors. As the Ministry of Finance said yesterday, reporting the financial victory that it had been seeking for so long, trying to bring about the early repayment of the country's debt, “Russia is no longer a country that is a debtor to the club.” Moreover, it is likely that Russia will soon legally have the opportunity to become a creditor within the Paris Club. The Ministry of Finance and the Ministry of Foreign Affairs are preparing the corresponding amendments to the legislation.The debt inherited from the USSR, which just over a year ago amounted to more than $45 billion, has been repaid in full. Moreover, ahead of schedule and on conditions favorable to Russia. Over the last four days, Vnesheconombank, which is the government’s agent for servicing the public external debt of the former USSR and Russia, transferred to creditors the entire remaining amount of debt - $23.7 billion. Planned payments amounted to $1.269 billion, the amount of early repayment was $22.468 billion. Payments were made in nine currencies, Vnesheconombank reported.
Early repayment of the entire amount of debt to the Paris Club, the Ministry of Finance is confident, will contribute to “strengthening the international authority of Russia as a state with a significant reserve of financial and debt stability (the ratio of public external debt to GDP will decrease to 9%), having a reputation as a conscientious borrower and striving for specific measures policies to improve the investment climate in the country."
The Soviet Union left a huge debt, which Russia shouldered under the so-called “zero option” of divorce between the republics. She inherited not only all of the foreign property of the Union, but also all of its debts. There was nothing to pay in the conditions of the collapse of the economy and a chronically deficit budget. By the time of the default in August 1998, Soviet debt had been restructured four times. And if by 1999 Russia was able to agree partly on writing off and partly on deferring payments on debts to private creditors (the London Club), it was not possible to do this with creditor countries.
The country was literally saved by the global price situation for oil, the main Russian export product. Since the beginning of the 2000s, they have embarked on such growth that already in 2003 the peak of payments to the Paris Club was successfully passed (at that time we paid $17 billion) and Russia suddenly turned from a country unable to pay its debts into one of the most solvent states of the world with a reputation as a conscientious borrower.
The rate of economic growth in recent years has been 6-7% per year, the country has a stable positive balance of payments and a deficit-free state budget. In terms of gold and foreign exchange reserves, Russia has taken third place in the world (yesterday they amounted to more than $265 billion). A stabilization fund has been formed and is rapidly accumulating (before payments to the Paris Club, its volume was over 2 trillion rubles). As the Ministry of Finance emphasizes, it was thanks to “the growth of the economic and financial power of the Russian Federation” that early repayment of the debt to the Paris Club became possible.
According to the Ministry of Finance, the debt to the Paris Club was “the largest, politically significant and difficult to manage category of public external debt.” According to experts, non-market debts such as the Paris Club debt are more typical for third world countries, while Russia positions itself as a G8 country. That is, according to this logic, it should be a creditor to poor states.
Let us remind you that the first early tranche was carried out exactly a year ago. Then Russia paid creditors $15 billion (in the same year, the debt to the International Monetary Fund in the amount of $3.3 billion was repaid ahead of schedule). Agreement on the second tranche was reached on June 16 this year in Paris. True, on different conditions. Creditor countries insisted on a $1 billion bonus, which is intended to partially compensate for their financial losses from failed interest payments. The parties agreed that approximately half of the debt would be repaid at par - 52.1%, and the premium for the creditors’ agreement to accept the debt ahead of schedule was set “below the market,” said Finance Minister Alexei Kudrin in one of his speeches in June. According to the terms of repayment, the debt that was serviced at a “floating rate” was repaid at par, and the part with a fixed interest rate was repaid at a premium. The rates on this part of the debt were 7-8% per annum. The premium that creditors will receive is determined at the rate of 4.8% per annum.
However, the additional payment of $1 billion cannot be compared with the savings that Russia will receive by paying off its debts ahead of schedule. As the Ministry of Finance reported yesterday, “the total savings of the federal budget on interest payments to the Paris Club of creditors for the period until 2020 will exceed $12 billion.” This money, as previously decided, will be used for investment in the Russian economy, including through the investment fund provided for in the budget since 2006.
Now the Ministry of Finance hopes that Russia itself will become a creditor within the Paris Club and, as Deputy Minister of Finance Sergei Storchak said, will be able to “issue preferential development assistance loans to other countries with a grant component of at least 35%.” However, this requires the legislation to be adjusted. According to Mr. Storchak, the necessary amendments can be prepared before the end of the year.
Meanwhile, the completion of payments to the Paris Club does not put an end to the debt history of the former USSR. There remains a debt to some countries that are not members of the club. The size of the debt is small - 3-4 billion dollars. It is supposed to be repaid with commodity supplies. Also, part of the “commercial” debt has not been settled. It is expected that the process of exchanging this debt for Russian Eurobonds as part of the second tranche for $600 million will be launched in early September. The first tranche was made in December 2002. Creditors' claims totaling $1.28 billion were admitted to the exchange.