Publication: Monitor Volume: 4 Issue: 166

Vladimir Potanin, head of the Interros group–which owns Russia’s largest private bank, Oneksim–said yesterday that Russian banks will be unable to repay their debts to Western creditors unless the terms of the debts are radically restructured. Potanin told the Financial Times in an interview that Oneksimbank is considering defaulting on its ruble forward contracts and will press for re-negotiation of its other loans. He said Western creditors so far have little appreciation of the depth of Russia’s economic crisis. “All our banks have collapsed,” he said. They must start to negotiate with their creditors now, “while they are still alive.” One solution, Potanin suggested, would be for Western creditors to take control of Russian assets, including banks and the companies they control. (Financial Times. September 11)

Reporting Potanin’s proposal, the newspaper commented that the hazards of doing business in Russia are likely to make outside investors wary of assuming control of Russian factories in lieu of repayment of their debts. But if Potanin’s gloomy predictions about the bankruptcy of the Russian economy are correct, they may have little choice. Bonn confirmed yesterday that Russia has defaulted on payment of interest on debt owed to the German government since the Soviet period for the first time since the beginning of the present crisis. (Financial Times, September 11) The delay will only heighten international concern about Russia’s ability to extract itself from its difficulties. David Riley, director of credit rating agency Fitch IBCA, warned that this “could be the first in a series of defaults.”