Russia is paying the debts of those countries which currently regard Russia their enemy
This Saturday Russia should pay about $2 billion to the Paris Club of Creditors. The sum is the last part of early debt repayment. An amount for debt service and repayment will total $55.5 billion for the period from 2002 to 2020. The debt of the former Soviet Union will account for 99 percent of the sum.
Russia is paying the debts of the former Soviet Union. It is paying back for Ukraine and Germany, the Baltic States, Uzbekistan and Kyrgyzstan. In other words, Russia is paying the debts of those countries which currently regard Russia their enemy. Russia should have shared its debt obligations with the former brotherly republics prior to handing out lands, infrastructure, and military equipment.
Russia and the Paris Club of Creditors signed an agreement on early repayment of nearly a third of the Russian debt earlier this year. The sum of $15 billion by nominal value should be paid within four months. The repayment began in June. Today Russia has to pay back the remaining $2 billion. The debt retirement is largely financed by the government's stabilization fund which now stands at 858 billion rubles.
Russia owed $43.1 billion to the Paris Club of Creditors as at January 1st, 2005. Russian Finance Minister Alexei Kudrin said at the time that early repayment of debt would help the government save hundreds of millions of dollars every year. Back in December last year the Russian President Vladimir Putin spoke about a possibility for Russia to repay early.
Russia completed the first stage of this year's debt redemption schedule by paying back $13 billion to the Paris Club of Creditors this summer. Given the heaps of money that keep growing in the Stabilization Fund thanks to high oil prices on the world market, the question is why not pay back the debt in full? Unfortunately, Western businessmen are not keen to alleviate a “burden of debt interest” for Russia.
In February this year, during his talks with the outgoing director of the World Bank James Wolfenson, President Putin pointed out that Russia had repaid early all of its debt to the International Monetary Fund. President Putin added that Russia would like to pay back its debt to the Paris Club of Creditors provided that the “move is economically feasible.”
Then Russian Finance Minister Kudrin tried to negotiate a 10 percent discount for Russia's early debt repayment during the London meeting of G-7 finance ministers. His attempts fell through. Members of the Paris Club of Creditors said that Russia was not entitled to early prepayment benefits due to huge revenues from oil sales and the latest increase in credit rating.
Using market rates for collecting debt from Russia turned out to be a “matter of principle” for the members of the Paris Club. The members believe that “those countries should respect their taxpayers.” Russia's foreign debt amounted to $115 billion at the beginning of 2005 while the annual debt service cost totaled $7 billion. The government undoubtedly showed immense respect to its citizens by paying the above amount to meet the debt service requirements.
Officials at the Russian Finance Ministry are confident that Russia and the Paris Club will continue to hold talks on early debt repayment aimed at lowering debt interest rate. The implementation of the early debt repayment program is one of the priorities of the Russian economy. However, the latest attempts by Finance Minister Kudrin to score in London ended in failure. President Putin has criticized his finance minister before. Nowadays the president should be quite disappointed at the way our foreign economic processes are implemented.
Mr. Kudrin says that his ministry intends to spend the annual debt interest on tackling serious social problems which Russia has aplenty. Meanwhile, the state coffers in 2006 should be mostly filled with estimated revenues generated by large-scale sales of oil at a high price that is forecast for the next year. So the interest saved by repaying the debt early is just a drop in the ocean. It will be used appropriately, no doubts about, if it does not get lost somewhere in the process.