CREDITORS GIVE RUSSIA ANOTHER BREAK ON FOREIGN DEBT.

Moscow on April 13 reached an agreement with its creditors to restructure US$4 billion in pre-1992 trade debt ascribed to Soviet-era foreign trading organizations (FTOs). This debt stems chiefly from imports contracted with FTOs for which payment was never made before the Soviet collapse in 1991. Under the terms of the April deal, US$1.5 billion of this debt will be forgiven outright, with the remaining US$2.5 billion to be converted later this year into eurobonds. The FTO deal is potentially important for two reasons. For Moscow, it represents the restructuring of Russia’s last major unregulated foreign debt obligations stemming from the August 1998 financial crisis. But the FTO deal also points to a pattern of debt restructuring in Russia which could have implications for the ongoing debate on restructuring the international financial architecture.

The framework of the FTO deal is quite similar to Moscow’s 2000 London Club restructuring, which wrote off a similar share (36.5 percent) of Russia’s Soviet-era obligations to commercial creditors and converted the remainder into Eurobonds. The FTO restructuring differs from the London Club deal in two other respects, however. First, the FTO restructuring is not comprehensive. The total dollar amount of FTO debt, much of which was originally denominated in transferable rubles, has not yet been settled upon; some estimates place this figure as high as US$8 billion. The April 13 agreement pertains only to the portion of the FTO debt whose magnitudes are recognized by both parties. Second, in contrast to the London Club restructuring, which reduced Russia’s foreign debt by nearly US$11 billion, the FTO deal will not have a significant impact on Russia’s foreign debt profile. According to Deputy Finance Minister Sergei Kolotukhin, the FTO deal’s additional savings in Russia’s debt service costs, beyond the US$1.5 billion write-off, amount to only US$400 million. The FTO restructuring now means that Moscow’s relations with all of its creditors are back on track. It also means that Russia is now fully covering its sovereign debt obligations. This is already having an impact on the federal budget. According to preliminary data posted on the Finance Ministry web page, Moscow paid US$2.6 billion to cover Russia’s foreign debts during the first quarter of 2001, compared to only US$980 million during the first quarter of 2001. But thanks to Russia’s economic recovery and continuing high oil prices, a budget surplus was still reported during the first quarter of this year (Reuters, February 6, April 13).

IN RUSSIA, THE PRIVATE CREDITORS ARE TAKING A BATH.