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Russia: Government Considers Debt Restructuring Plan

  • Stephanie Baker

Moscow, 26 May 1998 (RFE/RL) -- Prime Minister Sergei Kiriyenko said Monday the Russian government is considering a debt restructuring plan amid reports that the International Monetary Fund is not happy with the government's response to the current financial crisis.

Kiriyenko told a group of top U.S. pension fund managers visiting Moscow last night that the government had been consulting with the IMF about creating a special hard currency debt fund to pay back short-term ruble-denominated T-bills.

At a dinner hosted by the investment bank MFK Renaissance, Kiriyenko said: "The expense of servicing that debt is quite high and difficult for the Russian budget. Lowering debt servicing costs will be carried out by attracting additional resources on the foreign currency market with a stage by stage buy out of short-term debt."

It is unclear whether the IMF would contribute to the fund, but Boris Jordan, head of MFK Renaissance, said he believed the plan envisioned only additional Eurobond offerings.

The government is being squeezed on financial markets, with yields on T-bills topping 50 percent. The recent wave of uncertainty on Russia's domestic debt market has made it more expensive for the government to borrow to cover budget holes.

The IMF, which has complained about low tax collection, has indicated it is too early to decide on resuming payments under a $10 billion loan to Russia.

Martin Gilman, head of the IMF mission in Moscow, said: "At this point we are not yet at a stage to say whether the pace of the changes and the magnitude of the changes will be sufficient to achieve the program targets ... I can't say when the board will meet and the tranche will be released."

The IMF suspended payments under the loan program in January over concerns about Russia's budget deficit and chronically low tax revenues. Gilman's remarks contradicted Kiriyenko, who said he expected the IMF Board to meet at the end of the week to decide on resuming loan disbursements.

A delay in the release of the IMF funds could further undermine confidence in Russia's shaky debt and equity markets, which have tumbled to their lowest levels since the end of 1996.

Investors are waiting for a strong response to the current financial crisis. As Jordan put it: "What they are really waiting for are concrete steps by the Russian government."

President Boris Yeltsin today signed a decree approving deep spending cuts under a government action plan to balance the budget, but it is unlikely to persuade investors that the cabinet has the situation under control. Russia is still reeling from a wave of miners' strikes over unpaid wages and unemployment.

Vladimir Potanin, president of Uneximbank, said yesterday the government was responding to the current financial crisis adequately. But in his words: "It will be difficult for the government to go through this period absolutely alone. We are ready to support the government."

Yeltsin is due to meet Russia's top bankers and businessmen, including Potanin, on Friday (May 29), the same day the results of the auction of oil company Rosneft are due to be announced. The sale has frustrated some of Russia's leading financiers, who have complained that the government's starting price for the company is too high. Russia's Kommersant Daily newspaper has speculated that the government has been pressing gas monopoly Gazprom to bid amid concerns that the auction will attract no buyers. Bidding for Rosneft is due to close today.

Potanin said he had spoken with Kiriyenko about the need for the government to adopt a new approach to privatization given depressed markets. He said the government should consider accepting bridge loans for some of the assets to be sold this year, including Rosneft.

In his words: "If the auction doesn't take place, maybe Rosneft also should be considered as an option to be sold under the conditions of a bridge loan."

The idea, first raised last fall, has been compared to Russia's controversial loans-for-shares scheme, which handed stakes in prize companies to well-connected banks in exchange for loans to the government.