The indications are that Russia has a good opportunity to prepay all of its remaining Paris Club debt this year. The debt currently amounts to $22 billion as by the Paris Club estimates. The statement on a prepayment was released during a monthly “tour d’horizon” between the representatives of the Paris Club creditor countries. The Paris Club members welcomed the offer made by the Russian Federation to prepay its debt in full, they also agreed to enter into negotiations during the June session of the Paris Club on a multilateral agreement that would include main conditions for such a prepayment.
The so-called stabilization fund is a prime source of prepaying Russia’s foreign debt. Virtually all Russian politicians and many a bureaucrat are continually calling on the government to “unseal” the fund. As of early April 2006, the stabilization fund was estimated at $62 billion. Following a series of complex negotiations, Russia prepaid $15 billion of the debt to the Paris Club last year. Russia’s biggest creditor – Germany – has traditionally opposed to Russia’s plans to pay back its debt early. Germany would have collected a handsome interest on regular debt payments. Besides, two years ago Germany floated 5-year and 10-year bonds (dubbed Aries) worth about $6 billion. The bonds were redeemable against the payments of the debt owed by Russia to the Paris Club member states. That is the reason why Russian President Vladimir Putin voiced Russia’s intention to pay back in full to the Paris Club while meeting with German Chancellor Angela Merkel during the Russia-Germany business forum held in Tomsk late April. Speaking at the forum, Russian Finance Minister Alexei Kudrin said that Russia would also like to redeem $6 billion worth of Aries bonds floated by Germany against the Russian debt payments. The Russian president’s statement was like a bolt out of the blue because earlier last month Russia had made a proposal to the Paris Club regarding prepayment of a debt amounting to $12 billion only. The previous statement caused agitation in the debt markets. The price of Aries bonds soared overnight.
Most analysts agree that the negotiations on a prepayment agreement will be tough. However, the Paris Club statement has finalized an amount of prepayment at $22 billion i.e. the parties will discuss terms and conditions applicable to Russia’s debt in full including payments relating to Aries bonds. “We’d rather pay back to the Paris Club creditors in full as soon as possible,” said Andrei Saiko, head of the Russian Finance Ministry press service, in an interview to Vremya Novostei.
In the meantime, Germany’s stance on a prepayment is still at issue. The Paris Club statement says specifically that “a majority of creditors have already indicated their willingness to accept Russia ’s proposal on the prepayment of all it remaining debt to Paris club creditors. In accordance with the Paris Club rules, “the decision on the prepayment will be taken by each creditor country.” The problem that faces Germany looks deceptively simple – Germany has to buy back its own expensive bonds on the market as it receives debt at nominal value from Russia. According to an unofficial high-ranking source cited by Vremya Novostei, the position of Germany’s finance ministry remains unchanged. An official at the above ministry remarked dryly that Russia still owed around 8 billion euros to Germany, one of the Paris Club creditors of Russia. The amount does not include nearly 6 billion euros owed by Russia to Germany in connection with the floatation of Aries bonds. The German finance ministry official declined to comment on the statement released by the Paris Club creditor countries. As for the Russia proposal, the official at the German finance ministry said: “We haven’t yet received any official proposals from our Russian colleagues, and therefore we can’t comment on our attitude to the issue. So far we have learned of the latest developments by reading newspapers. Needless to say, we don’t comment on reports spread by the media.”
Translated by Guerman Grachev
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