The Russian government yesterday postponed by a week (to 25 September) the announcement of conditions under which it will redeem GKOs–short-term, ruble-denominated government bonds. Russia effectively defaulted on GKOs when, on August 17, it announced a three-month moratorium on payments. The postponement came after seventeen leading US, European and Japanese banks–meeting in London–told the Russian government that the terms it was reportedly planning to announce were “unacceptable.” The banks complained, too, that the terms were “being forced upon creditors unilaterally.” This was not, the banks said, in Russia’s own long-term interest because it could have a “seriously adverse effect” on the country’s relations with its creditors. The banks were alarmed by reports that the Russian Central Bank had this week offered Russian commercial banks a preferential rate to redeem their GKOs, while western banks were not consulted. They called on Prime Minister Yevgeny Primakov to meet with them for negotiations next week (Russian agencies, September 17; Financial Times, September 18).
Deputy Prime Minister Aleksandr Shokhin, whose new job puts him in charge of negotiating with western creditors, admitted yesterday that the government’s August 17 decision to default had been wrong and “did not conform to the existing norms of business practice.” He appealed to western banks to negotiate with the government and not, as some had been threatening, to seize or freeze the assets of Russian banks abroad. The western banks were not, however, mollified by Shokhin’s statement, because it was accompanied by an announcement yesterday that the Central Bank intends to print money to pay off the state’s debts and to bail out domestic banks. The Central Bank insisted that the new emission would be controlled, but the announcement fanned fears that Russia may slide into hyperinflation (Russian agencies, September 17; Financial Times, September 18).
RUSSIA HEADING FOR ITS WORST HARVEST IN FORTY YEARS.