RUSSIA-VIETNAM: Debt Accord to Spur Ties Between Old Allies

By IPS Correspondents Reprint | | Print |

Sergei Blagov

MOSCOW, Sep 15 2000 (IPS) - Russia and Vietnam have finally worked out Hanoi’s Soviet-era debt, a move that may finally spur deeper economic ties between the two former Cold War allies.

The agreement on a considerable cut in Hanoi’s old debt was reached during Vietnamese Prime Minister Phan Van Khai’s official visit to Moscow on Sep 10-14, after years of difficult negotiations.

Under the accord signed by visiting Russia’s deputy prime minister and finance minister Alexey Kudrin and Vietnamese finance minister Nguyen Sinh Hung on Sep 13, Hanoi is to repay 1.7 billion dollars to Moscow over the next 23 years.

The deal was done under the terms of the Paris Club of creditors and the interest will be set at the market rate, a finance ministry spokesman told IPS.

The settlement of the “ruble debt” problem is seen to be a key condition for Vietnam’s external viability in the long term.

Much of the debt emerged from a number of showcase projects that Moscow backed in the past in its socialist ally in South-east Asia.

Since the collapse of the Soviet Union, the relationship between former allies have been overshadowed by a dispute over repaying Vietnam’s so called ruble debt to the former USSR, inherited by Russia.

Vietnam owes Moscow 11 billion transferable rubles, the Soviet quasi-currency, and conversion estimates have ranged from Vietnam’s 2 billion dollars to Russia’s 17 billion dollars.

At one point, Moscow offered to write off 70 percent of the debt on condition that Hanoi agree that one dollar is worth one transferable ruble.

The Vietnamese rejected the forgiveness offered by Moscow and said the conversion rate should be 85 percent. When Khai arrived in Moscow, both sides agreed that Vietnam would have to pay interest on the debt and pay the remainder, leaving the amount of interest as the only unresolved question.

The debt repayment should not affect Vietnam’s development, Prime Minister Mikhail Kasyanov said after talks with Khai on Sep 11.

However, the deal did not come easy. Originally due to be signed on Sep 11, it was signed two days later.

On the surface, the Vietnamese must have been happy — they achieved an 85 percent cut-off and got a restructuring scheme over 23 years.

However, the Russians managed to insist on using “market-rate interest” for Vietnam’s debt.

A source in Russian finance ministry involved in negotiations told IPS that Vietnam is to repay well above 2 billion dollars as a result of market rate interest. But he declined to reveal the exact rate.

“The Vietnamese delegation left Moscow not in an exactly happy mood,” the official said.

Khai also met with President Vladimir Putin on Sep 12, reportedly to discuss economic ties, notably cooperation in oil and gas sector. Putin hailed Vietnam as Russia’s “traditional partner,” and Khai said a new level of bilateral ties was achieved during talks in Moscow.

Khai also visited the Plekhanov Academy of Economics, from where he graduated in 1965.

After leaving Moscow, Khai visited Belarus. In Khai’s meeting with Kasyanov on Sep 11, officials from the natural gas giant Gazprom and PetroVietnam signed an agreement on developing oil and gas fields on Vietnam’s continental shelf.

Gazprom and PetroVietnam first agreed to develop jointly off- shore gas fields in the Tonkin gulf in November 1997, but it took three years to finalise the deals.

The deal signed in Moscow on Sep 11 involves “Block 112”, an off-shore gas field some 25 kilometers off the coast of the Central Thua Thien-Hue province, 660 kilometers south of Hanoi.

Gazprom and PetroVietnam agreed to set up a production-sharing venture to develop the off-shore gas deposit with estimated reserves of 500 billion cubic metres for 25 years.

The deal is an important step in terms of Gazprom’s drive to do business in South-east Asia, Gazprom’s chief spokesman Igor Ivantsov told IPS.

The agreement between Gazprom and PetroVietnam was the second major bilateral deal in two years. In August 1998, Russia and Vietnam signed an agreement to build the Dung Quat oil refinery in central Vietnam with an annual capacity of 6.5 million tonnes.

Vietnam’s oil monopoly, PetroVietnam, and its Russian partner, state-run Zarubezhneft, each holds 50 percent equity in the 25- year project.

The partners in VietRoss joint venture are expected to provide 800 million dollars, while the remaining 500 million dollars would be borrowed overseas. The refinery is expected to cost a total of 1.3 billion dollars.

It is scheduled to begin operations by 2004, and will have a capacity of 130,000 barrels per day.

Zarubezhneft also operates Vietnam’s main oil field in waters off the southern port of Vung Tao, also in partnership with PetroVietnam, through another joint venture, Vietsovpetro.

Despite booming cooperation between Moscow and Hanoi in the oil and gas sector, bilateral trade is hindered by high transport costs, lack of capital and cumbersome bureaucracy in both countries.

Bilateral trade between in 1999 reached 416 million dollars, slightly up from the previous year. This is a considerable increase compared to 280 million dollars in 1997, said Alexander Sitnikov, a Vietnam expert with Russian Trade Ministry.

Vietnam is still running a trade deficit as Russia exported 296 million dollars worth of goods to Vietnam in 1999, he said. Bilateral trade stood at a mere 62 million dollars in the first quarter of this year, including 52 million dollars of Russian exports, Sitnikov added.

Moscow and Hanoi agree the figure is far below the potential. Moscow has said it aims to multiply its trade with Vietnam tenfold — or to about 3 billion dollars — over the next few years, but the target is still long way off.