Vladimir Potapov

T

he International Monetary Fund (IMF) supported Russia’s intent to pay off its debt to the Paris Club ahead of time. It was reported by officials of the Club that sent a mission to examine Russia’s economic state. The mission recently finished its work in Moscow. Its head, deputy director of the IMF European II Department Jose Fajgenbaum pointed out that an advanced repayment of debt would require an agreement with all Paris Club creditors. Also, the possibility of advanced repayment at a discount should be subject to negotiations between Russia’s government and creditors.
Speeding up the repayment of debts by Russia has become a tradition lately. For example, acting with rare efficiency its Central bank carried out the order of president Vladimir Putin to repay in advance the IMF credit granted to Russia before the crisis of August 1998 to prop up the ruble rate. This credit did not prevent the Russian default. But since then the state of affairs has drastically changed. Russia has encountered no particular problem with paying the IMF for large credits.
This time around the situation with repayments repeats itself. Vladimir Putin again declared Russia’s readiness to make a number of advanced payments to the Paris Club for debts of the former USSR. It would be worth recalling that the amount of the Soviet debts to the Paris Club creditors totals $42B.
Referring to the long-term strategy adopted by Russia with respect to external debts prime minister Mikhail Kasyanov did not rule out that the problem of the country’s debts could be solved with "more flexibility" by using, among other things, investment mechanisms.
Opponents of Russia’s advanced repayment of debts started voicing their disagreement again, especially so in light of pre-election clashes that fell on the year’s end. They argued that being a debtor for some time would do no political harm to Russia. Furthermore, they said, creditors were not interested in advanced repayment of debts because, in fact, it was becoming a real headache for them. So, questions were immediately raised: to whom to lend money again, on what terms?
Thus, the authoritative statement by the IMF’s representatives in this case was quite timely. It is clear that terms of paying off debts of the former USSR to the Paris Club creditors depend on results of consultations with them, says Russia’s vice prime minister, minister of finance Alexei Kudrin. In his opinion, there is no reason to predict that it may happen in the nearest future. At the same time Kudrin notes that precisely now, while having active debts, Russia possesses free resources. Advanced repayments would contribute to reducing future interest payments. Russia’s chief financier thinks that there is a need to take into account some other factors as well. "In a year the value of money will change", Kudrin states. That is why the amount of payments should also be discussed. In his words, these payments could help reduce budget deficits in a number of creditor nations and that would be a positive development for them.
According to official statements, the Russian government intends to seek an equilibrium in paying off the country’s debts to international financial institutions. It is expected that for this purpose proceeds from privatization amounting to 41 billion to 43 billion rubles as well as 20 billion rubles in proceeds from selling precious metals and stones will be used (right now the rate of Russia’s national currency is equal to about 30 rubles for one U.S. dollar). All these payments are planned to be made between 2004 and 2005. Of course, it is true that these funds may not be enough to liquidate external debts. In this case the government can use internal market borrowings.
As far as plans of external market borrowings are concerned, Russia’s government hopes to obtain $2.2 billion in 2004 and $4 billion in 2005. The IMF officials, who visited Moscow, did not find any contradictions in all this considering the fact that the 2004 budget was planned in the black. In the opinion of J. Fajgenbaum, it is all right, if interest rates on new borrowings exceed rates of return, at which resources of the stabilization fund will be placed. "It is quite possible that there will be some difference between interest rates, which are paid out on borrowings and on placed funds", he said stressing the need to have a broader perception of prospects. For example, in his words, one of the factors, which contributed to Moody’s decision to raise the Russian rating to the investment level, was precisely the establishment of the stabilization fund. In its turn, raising the country’s rating might lead to reduction of interest rates on Russia’s borrowings. J. Fajgenbaum also pointed out that in recent years Russia’s net debt started decreasing. "The really important thing is that Russia’s net debt is being reduced. And it is necessary to concentrate on this", he said.