Author`s name Dmitry Sudakov

Russia forgives debts to many, no one forgives Russia's debts

Debts must always be repaid, this is a postulate of global economic policy. Those who do not repay their debts become outcasts. The debt issue has always been a topic for discussion. The debts of the former Soviet Union to its partners in the Council for Mutual Economic Assistance (CMEA) are no exception. The main question is how they should be repaid, because under the CMEA framework calculations were done with transferable, conditional rubles, and repayment is done in foreign currency.

In May of this year, Russia has repaid the debt to the Republic of Serbia and the Slovak Republic for the obligations of the Soviet Union. Russia's public external debt to Slovakia amounted to $1.7 billion dollars, and Serbia - $288.8 million dollars. Mostly the debt was repaid through the supply of industrial products manufactured in Russia, but in part it was paid with money.

Despite the ongoing global crisis, Russia regularly pays off not only its own external debt, but also the external debt of the former USSR. Russia, as the legal successor of the Soviet Union, mainly owes to its former partners in the socialist camp.

At the same time, it should be noted that the external debt of Russia since the beginning of 2013 increased by $52 billion, from $632 billion to $684 billion dollars. This is the data provided by the Central Bank of Russia. As explained in the Central Bank of the Russian Federation, this growth was mainly in the non-financial sector whose debts increased from $366 to $412 billion dollars. 

In terms of per capita debt, in the last five years it has increased by nearly a third, reaching $4,200. 90 percent of this amount is private and corporate debt, and the government cannot be held liable for it.

From the late 1940s until late 1980s, European socialist states were the main foreign trade partners of the USSR. All these countries together were part of the Council for Mutual Economic Assistance created in 1949. The Soviet Union supplied its allies with gas, oil, wood, non-ferrous metals, weapons, tanks, planes, as well as turbines for nuclear power plants.

These products were supplied at the prices significantly below the market. Some countries received oil at bargain prices and then resold it, but at market prices based on the agreement with the Soviet Union. The oil trade has an institution of quotas limiting the volume of trade by country. Similar schemes existed for Soviet weapons.

The USSR obtained from their Western neighbors industrial goods, trams and locomotives, clothing and footwear, various food and medicines. All calculations were made in conventional units through a specially created bank. These units were essentially a clearing currency and served as countable units for barter at the prices that did not reflect market prices of the capitalist countries. 

By early 1990s the Soviet Union appeared to owe its allies billions in conventional units. At the time of the collapse of the country, this debt was not repaid. Russia took over the debt with the condition that it will own the debts of the third world countries to the Soviet Union. Russia agreed to recalculate the amounts in U.S. dollars at the suggestion of the then Minister of Foreign Economic Relations P. Aven and Deputy Prime Minister Yegor Gaidar. This solution was expensive for both its initiators and for Russia that has to pay with a particular currency for symbolic rubles.

Only in recent years, Russia forgave about $116 billion of debt to countries in Africa, Asia and Latin America, while the former socialist countries were not going to forgive anything.

For many years, the Soviet debt issues have been the subject of negotiations between Russian politicians and their counterparts from the former socialist countries, many of which have now become members of the EU and NATO. The debts to Slovakia and Serbia have been fully repaid. Czech Republic, Montenegro, Hungary, Bulgaria, and Poland will be fully repaid in the near future. Russia paid the full amount owed to the former GDR to Germany. There are no negotiations only with Romania, but the existence of debt was acknowledged by Russia.

Russia owes Romania a little over $200 million. This debt goes back to the days when Romanians participated in the construction of a mining and processing plant in Krivoy Rog, but have not been paid. Now this facility is located in Ukraine, which significantly complicates the process of payments. It should be remembered that with the assistance of the Soviet Union from 1948 to 1973 over 100 chemical, metallurgical, and machine-building enterprises were built in Romania. Soviet specialists helped Romanians to build these facilities. If we were to calculate all the funds spent on the construction of Romanian factories it would be unclear who owes who.

Russia's debt to Bulgaria in the amount of 100 million dollars is also unclear. Bulgaria was the closest ally of the Soviet Union in Europe. Almost all Bulgarian industrial enterprises, as well as major infrastructure, were built with Soviet assistance. They include oil refineries in the ports of Burgas and Varna, and nuclear power plant Kozloduy.

These facilities within the CMEA did not only provide the countries of the socialist camp with goods, but were also used to optimize logistics and obtain freely convertible currency. For example, petroleum products were re-exported to the Middle East and Europe, and Venezuelan oil was supplied to the Russian Far East. Bulgaria exported electricity to Turkey and Greece, getting dollars and sharing with the Soviet Union, not to mention the fact that the supply of agricultural products in the USSR amounted to 10 percent of total food imports.

Russia's debt to Poland amounted to half a billion dollars. In the period of a severe economic crisis that lasted from 1980 to 1986, the Soviet Union provided the Poles aid equal to nearly $8 billion. USSR bought coal from the Poles while it had plenty of its own. Polish cosmetics and clothes were of high quality, but it is unlikely that they cost billions of dollars.

The Soviet Union owed the former Yugoslavia approximately $1.5 billion. Russia acknowledged the debt, but there are questions as to who should be receiving the payments. The republics that were part of Yugoslavia did not agree on the succession. Russia separated the share of Slovenia (206 million) and Croatia (187 million). These debts have already been repaid. Russia owes Macedonia $60 million. It is planning to repay this debt as well as the debt to Bosnia and Montenegro in the nearest future.  

The USSR owed even more to Hungary - $1.8 billion dollars. Such debt could be accumulated due to the fact that the Hungarians supplied to the USSR a lot of heavy industry products. Hungarian equipment was installed at Soviet factories, fields were treated with Magyar harvesters, and "Icarus" buses can still be seen on Russian roads. Hungary, however, was an agrarian country until 1945. All automotive, chemical, metallurgical plants and oil refineries were built with Soviet assistance. Soviet specialists built a nuclear power plant in the country. The Soviet Union was pouring multibillion-dollar investments into the Hungarian economy. Again, it is unclear who owes whom.

The debt of the USSR to Czechoslovakia was $5.4 billion. After the collapse of these countries, Russia paid $3.6 billion to the Czech Republic and $1.8 billion to Slovakia. Perhaps, this is the only case where the Soviet Union could really owe something. Soviet Union's investments in Czechoslovakia (in particular in the Czech Republic) were minimal. The USSR purchased mainly industrial products in Czechoslovakia. Czechoslovak machines were installed in munitions factories, and trams, trolley buses and locomotives are still in use in Russia.
If we add up all the debts of the Soviet Union to socialist countries, it turns out that Russia, as the successor, repaid its former allies over $15 billion, without recalculations. No one expressed gratitude to Russia for this charity. On the contrary, liberals who came to power in these countries try to accuse Russia of all mortal sins at every opportunity.  

Sergei Vasilenkov


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