RUSSIA TAKES PROACTIVE APPROACH TO MANAGING EXTERNAL DEBT…

The Russian government has decided to tackle the problem of high debt service payments scheduled for 2003 by repaying substantial amounts early rather than seeking restructuring to postpone some of the payments to the Paris Club. This development added more good news to an already promising picture of Russia’s gradual rehabilitation as an international borrower. Russia’s creditworthiness has improved substantially this year, with strong fundamental factors (large current account and budget surpluses, brisk GDP growth and impressive progress on structural reform) overshadowing the memories of the 1998 financial crisis and the government’s awkward handling of negotiations with the Paris Club early this year. At the end of June 2001, Russia’s official gross external debt amounted to US$156.8 billion (50.6 percent) of GDP at the market exchange rate, a manageable level. In October, Russia made three payments ahead of schedule to the IMF, totaling some US$1 billion. This is in line with President Putin’s recent statement that Russia would start paying some of the debt owed to the IMF early. Finance Minister Aleksei Kudrin announced in October that Russia would prepay a total of US$2.7 billion to the Fund over the next several months, adding that the current level of foreign exchange reserves (US$38.6 billion as of October 12) allows Russia to do so. Prepayment of the IMF debt will help ease Russia’s external debt service burden in 2003, when payments were scheduled to peak at US$19 billion (Reuters, October 23).

Kudrin said that the Russian government is considering the possibility of paying debts to the Paris Club ahead of schedule as well. Budget funds, he said, are currently available to significantly reduce the peak in payments to the Club in 2003. However, he also said that the amounts of possible early repayments have not yet been determined. There are at least two reasons behind the Russian government’s recent shift toward the idea of early repayment of the country’s foreign debts. First, this is seen as a good way to dispose of any unallocated budget revenues that would otherwise be spent on social programs or defense due to political pressures from the Duma. In addition, it is designed to persuade the major Western credit rating agencies to upgrade Russia’s debt ratings earlier rather than later, enabling the country to return to international capital markets on more favorable terms and thus reduce its long-term borrowing costs (Troika Dialog, October 25).

…WHILE TRADE AND CURRENT ACCOUNT SURPLUSES CONTINUE TO NARROW.