Moscow, 26 June 1997 (RFE/RL) -- The Paris Club of creditor nations has agreed in principle to let Russia join its ranks in a move being hailed as a major victory for Russia's efforts to integrate with the world financial community.
But analysts said the deal was more of a political than an economic gain for Russia, because many of Moscow's debtors are unlikely to pay up in the near future.
The deal was clinched during all night talks on Thursday in the U.S. city of Denver, ahead of the summit of major industrialized powers known as the Group of Seven. The last minute agreement helped boost Russia's standing during the summit, when President Boris Yeltsin was allowed to take part in nearly all the major discussions.
A buoyant Yeltsin welcomed the news of Russia's admission to the Paris Club, declaring himself in a "good mood," while U.S. President Bill Clinton applauded the agreement as "another happy development" that brings Russia into the group of developed nations.
While Russia's entry to the Paris Club will be formalized only later this year, the agreement represents a significant step forward for Moscow, which had pinned hopes on joining the 19 member club as a creditor in order to win back some 140,000 million dollars lent to Soviet allies during the Cold War.
U.S. Deputy Treasury Secretary Lawrence Summer hailed the agreement as a sign of "the financial end of the Cold War."
The terms of Russia's entry to the Paris Club will not affect a 25-year debt rescheduling agreement which Russia concluded with the Paris Club last year on nearly $40 billion which Moscow itself owes to official creditors. Instead, Russian membership allows Moscow to work in tandem with other creditor nations to secure repayment of its old loans to Cold War allies.
Under the membership deal, Russia agreed drastically to reduce its claims on third world country debtor nations by anywhere between 25 to 75 percent.
A statement by Paris Club chairman Christian Noyer said the agreement provided for a "higher adjustment for the poorest countries taking into account country specificities, with a view to ensure the financial stability of all debtors."
First Deputy Prime Minister Anatoly Chubais said the conditions of Russia's entry are favorable because the debts are often quoted at a much lower percent of their nominal value on international markets.
A chief stumbling block to the deal had been evaluating the debt, much of which was taken out in rubles years ago or incurred by countries importing arms. A complex formula for evaluating the debts has been agreed, which takes into account the timing of the loans and the form in which they were made.
More than 40 countries are in debt to Moscow, with countries like Vietnam and Ethiopia topping the list of major debtor nations. First Deputy Prime Minister Anatoly Chubais said the Russian government does not expect to recoup all its debt and pointed to Nigeria or Angola as countries that were unlikely to pay up.
Chubais said Russia's entry into the Paris Club would help Moscow win better credit terms and would result in immediate cash flows to the budget, easing payment of wage and pension arrears.
Analysts said the deal was a positive diplomatic victory for Russia, but that it was unlikely to help Russia recover much in the way of outstanding debt any time
Brigitte Granville, an economist with the Royal Institute for International Affairs, said the deal was more of a diplomatic gain than a direct financial gain for the cash-strapped Russian government. As she put it: "Russia will be in a position to make its voice heard."
Analysts said developing countries would benefit from the agreement as much as Russia would. Paris Club membership for Russia will mean Moscow is likely to take part in future multi-lateral debt rescheduling agreements with third world countries, which could mean further reductions in Moscow's claims on debtor nations.
Charles Blitzer, chief emerging markets economist at the London-based brokerage Donaldson, Lufkin & Jenrette called the deal a "win-win situation" for both sides. As he put it: "Developing countries gained because Russia will be reducing the amount claimed from them and Russia gains because it is now part of the international club collecting debts."