Moscow plans its own default one year in advance

Moscow's total debt will reach 103 billion rubles or 30,4 percent from capital budget gains by the end of 2004, reports business edition of “Vedomosti”.

According to the credit committee, Moscow's debt constituted 83,2 billion rubles in January.

Nevertheless, the government continues to draw in funds, while hoping for a successful state of the market as well as an increase of Moscow's appeal for potential investors after the nearing presidential elections. The capital has already issued its credit liabilities for a 7-year term. Nowadays, the committee plans to emission 10-year bonds, which are scheduled to be paid off in full by 2014.

Experts claim that these will not only be the tallest piles of documents, but also the most expensive papers in Russia. Big amount of free rubles is being heated up by today's stir on the stock market. For example, existing demand for those 7-year bonds issued in January has already surpassed the initial offer by almost four times. It is also worth mentioning that they bring 8,23 percent annual profit.

However, in the course of the Tuesday’s governmental meeting, head of the Moscow's credit committee Sergey Pakhomov did not appear to be optimistic, reports newspaper “Vremya Novostei.” He noted that despite such annual increase of profits of the Moscow State budget by 8%, increase of the external debt will nonetheless constitute about 20 billion rubles per year. According to him, profit redistribution in favor of the federal center leaves Moscow less capabilities to eliminate the debt altogether.

Mayor of Moscow Yuri Luzhkov has made the following announcement during the meeting. He's introduced an idea of a bill, that would indicate maximum degree of the Moscow's debt as 30-35% from the city's budget. He also commissioned the credit committee to convert major portion of the debt in rubles.

The mayor explained his decision as an attempt to avoid the kind of situation of 1998's financial crisis, when the debt had risen 6 times in foreign currency. However, according to experts, due to the steady growth of Russian currency, such conversion of currency to rubles could only increase the risk.

Source: Lenta.Ru