By IPS Correspondents
MOSCOW, Nov 20 1995 (IPS)

Russian economic analysts have hailed Russia’s pact with a group of 600 creditor banks to reschedule interest and principal payments on 32.5 billion dollars in loans as a chance to start borrowing on world capital markets.

The agreement last week capped four years of negotiations, but the outline deal will herald another six to 12 months of talks on the fine detail on the pact’s implementation and the exact amounts of debt owed each bank after years of rate shifts.

The agreement with the London Club of western commercial banks covers 25.5 billion dollars of principal and seven billion in interest, reschedules the principal for a 25-year period with seven years grace.

“The Russian government realises the importance of obtaining a credit rating,” says Yelena Kolokolzeva, a financial expert with the Moscow News weekly. “So it has recently been paying up, on the nail, its post-Soviet debt, though it is tiny in comparison with Soviet debts.

European and Russian analysts read the pact as a ‘vote of confidence’ from large foreign creditors such as Credit Lyonnais, Deutsche Bank and Japan’s Industrial Bank. It will allow Russia to borrow to fund the overhaul of its economy and industrial base without the need for collateral.

“Reassuring Western creditors on its pre-1992 liabilities as well gives Russia its first real chance to access global capital,” Kolokolzeva added. “A London Club agreement is a step to Eurobond issues and direct flotation of lucrative Russian equity”.

According to the schedule Russia will have to pay back no less than two billion dollars of the principal by 1997 with the rest to be securitized at floating rates.

Russia also pledged to pay 1.5 billion dollars of 1994-1995 overdue interest before the end of 1996 with the rest of it being paid in instalments over 20 years with seven years grace period.

Russian commercial debt consists of about 7,000 loans, the majority of them dating back to Soviet times. Russia’s chief negotiator Oleg Davydov has called the deal “historic”, saying it gives Russia a chance to push economic reforms forward.

Russia has assumed responsibility for all the former USSR’s outstanding debt. Davydov has said the country will strive to return to international money markets as soon as possible. “We think the necessary conditions for that will be in place even in 1996,” he told the Russian ITAR-TASS news agency.

Estimates of how much Russia hopes to borrow in 1996 vary, with two billion as its likeliest target. Any bond or loan issue launch would have to wait until the fine details were cleared up. However the potential strength of the Russian economy once it slips its Soviet-era liabilities is likely to draw support, especially bonds or loans based on commodities.

Bankers may yet demand a formal credit rating from agencies like Standard and Poor and others. But a rating could be politically difficult, as it is highly possible Russia may end up listed lower than other faster developing ex-Soviet Bloc states like Poland and the Czech Republic.

The Frankfurt breakthrough followed on the heels of Russian success in negotiations to reschedule its intergovernmental debt with the Paris Club of creditor nations.

Talks with the Paris Club were held by Davydov’s team in Paris on Wednesday before its meeting with the London Club in Frankfurt. The Wednesday talks ended with agreement in principle to reschedule Russia’s intergovernmental debt — about 40 billion dollars of a total foreign debt of 120 billion dollars.

According to Davydov, the precise terms of rescheduling will be worked out and probably signed in June 1996. From 1996 onwards Russia will also be able to take part in Club meetings on third party debts, making it a virtual member of this financial body.

“Although the Paris Club took a pause to consider the deal terms, apparently anxious over political situation in Russia, what has been agreed upon is undoubtably a success,” said Alexei Portanski, an analyst with the leading Russian daily Izvestia.

There are questions over president Boris Yeltsin’s health and a scheduled a presidential election in June.

The Paris Club have three times postponed Russian repayments since 1993, but only until the end of the current year. This time it is apparently bowing to Moscow’s wish for a “global” Soviet debt solution.

“The long-term debt restructuring gives the Kremlin a possibility for strategic balance-of-payments and foreign trade policy planning. At the same time there will be no need for constant debt consultations with the West, which used them to keep Russia on a tight leash,” Portanski says.

Nevertheless, as opposed to the London Club commercial attitude, the Paris Club still views Russia’s debt in political terms as well: it provides useful leverage should the country stray from the straight and narrow path of economic reforms.

“The Paris meetings demonstrate that the West trust the economic policies of Russian prime minister Viktor Chernomyrdin and do not want to upset the cart by demanding what Russia clearly can’t pay,” says Kolokolzeva.

“The creditors understand that without long-term debt rescheduling Russia will either have to go into bankruptcy or forgo the structural reconstruction of its economy which means the end of all reforms”.

According to the previous Paris Club schedule the peak of Russian debt repayments falls on 1995-1997. During these three years Russia would have to pay to the creditors an overall sum of 38.5 billion dollars, comparable to annual Russian export volume. International Monetary Fund (IMF) experts say a country’s annual debt burden should not exceed 30-40 percent of its total yearly export revenue.

The success of the Paris and Frankfurt rounds were also helped by the progress with the IMF on a new three-year loan aimed at continuing Russia’s current monetary and economic stabilisation programmes.

In the last year Viktor Chernomyrdin’s government has been closely following Fund guidelines for cutting government spending and cheap credits in order to bring the inflation down.

The day before Oleg Davydov returned to Moscow, an IMF delegation returned to the Russian capital to continue negotiations with the government to iron out details for the follow-up loan to the Fund’s current 6.5 billion dollar stand-by credit.

The possible new loan, called an Extended Financing Facility, could total as much as 18 billion dollars, Russian officials say.

Excerpt:

By IPS Correspondents
MOSCOW, Nov 20 1995 (IPS)

Russian economic analysts have hailed Russia’s pact with a group of 600 creditor banks to reschedule interest and principal payments on 32.5 billion dollars in loans as a chance to start borrowing on world capital markets.

The agreement last week capped four years of negotiations, but the outline deal will herald another six to 12 months of talks on the fine detail on the pact’s implementation and the exact amounts of debt owed each bank after years of rate shifts.

The agreement with the London Club of western commercial banks covers 25.5 billion dollars of principal and seven billion in interest, reschedules the principal for a 25-year period with seven years grace.

“The Russian government realises the importance of obtaining a credit rating,” says Yelena Kolokolzeva, a financial expert with the Moscow News weekly. “So it has recently been paying up, on the nail, its post-Soviet debt, though it is tiny in comparison with Soviet debts.

European and Russian analysts read the pact as a ‘vote of confidence’ from large foreign creditors such as Credit Lyonnais, Deutsche Bank and Japan’s Industrial Bank. It will allow Russia to borrow to fund the overhaul of its economy and industrial base without the need for collateral.

“Reassuring Western creditors on its pre-1992 liabilities as well gives Russia its first real chance to access global capital,” Kolokolzeva added. “A London Club agreement is a step to Eurobond issues and direct flotation of lucrative Russian equity”.

According to the schedule Russia will have to pay back no less than two billion dollars of the principal by 1997 with the rest to be securitized at floating rates.

Russia also pledged to pay 1.5 billion dollars of 1994-1995 overdue interest before the end of 1996 with the rest of it being paid in instalments over 20 years with seven years grace period.

Russian commercial debt consists of about 7,000 loans, the majority of them dating back to Soviet times. Russia’s chief negotiator Oleg Davydov has called the deal “historic”, saying it gives Russia a chance to push economic reforms forward.

Russia has assumed responsibility for all the former USSR’s outstanding debt. Davydov has said the country will strive to return to international money markets as soon as possible. “We think the necessary conditions for that will be in place even in 1996,” he told the Russian ITAR-TASS news agency.

Estimates of how much Russia hopes to borrow in 1996 vary, with two billion as its likeliest target. Any bond or loan issue launch would have to wait until the fine details were cleared up. However the potential strength of the Russian economy once it slips its Soviet-era liabilities is likely to draw support, especially bonds or loans based on commodities.

Bankers may yet demand a formal credit rating from agencies like Standard and Poor and others. But a rating could be politically difficult, as it is highly possible Russia may end up listed lower than other faster developing ex-Soviet Bloc states like Poland and the Czech Republic.

The Frankfurt breakthrough followed on the heels of Russian success in negotiations to reschedule its intergovernmental debt with the Paris Club of creditor nations.

Talks with the Paris Club were held by Davydov’s team in Paris on Wednesday before its meeting with the London Club in Frankfurt. The Wednesday talks ended with agreement in principle to reschedule Russia’s intergovernmental debt — about 40 billion dollars of a total foreign debt of 120 billion dollars.

According to Davydov, the precise terms of rescheduling will be worked out and probably signed in June 1996. From 1996 onwards Russia will also be able to take part in Club meetings on third party debts, making it a virtual member of this financial body.

“Although the Paris Club took a pause to consider the deal terms, apparently anxious over political situation in Russia, what has been agreed upon is undoubtably a success,” said Alexei Portanski, an analyst with the leading Russian daily Izvestia.

There are questions over president Boris Yeltsin’s health and a scheduled a presidential election in June.

The Paris Club have three times postponed Russian repayments since 1993, but only until the end of the current year. This time it is apparently bowing to Moscow’s wish for a “global” Soviet debt solution.

“The long-term debt restructuring gives the Kremlin a possibility for strategic balance-of-payments and foreign trade policy planning. At the same time there will be no need for constant debt consultations with the West, which used them to keep Russia on a tight leash,” Portanski says.

Nevertheless, as opposed to the London Club commercial attitude, the Paris Club still views Russia’s debt in political terms as well: it provides useful leverage should the country stray from the straight and narrow path of economic reforms.

“The Paris meetings demonstrate that the West trust the economic policies of Russian prime minister Viktor Chernomyrdin and do not want to upset the cart by demanding what Russia clearly can’t pay,” says Kolokolzeva.

“The creditors understand that without long-term debt rescheduling Russia will either have to go into bankruptcy or forgo the structural reconstruction of its economy which means the end of all reforms”.

According to the previous Paris Club schedule the peak of Russian debt repayments falls on 1995-1997. During these three years Russia would have to pay to the creditors an overall sum of 38.5 billion dollars, comparable to annual Russian export volume. International Monetary Fund (IMF) experts say a country’s annual debt burden should not exceed 30-40 percent of its total yearly export revenue.

The success of the Paris and Frankfurt rounds were also helped by the progress with the IMF on a new three-year loan aimed at continuing Russia’s current monetary and economic stabilisation programmes.

In the last year Viktor Chernomyrdin’s government has been closely following Fund guidelines for cutting government spending and cheap credits in order to bring the inflation down.

The day before Oleg Davydov returned to Moscow, an IMF delegation returned to the Russian capital to continue negotiations with the government to iron out details for the follow-up loan to the Fund’s current 6.5 billion dollar stand-by credit.

The possible new loan, called an Extended Financing Facility, could total as much as 18 billion dollars, Russian officials say.

Excerpt: