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Kazakhstan: Barter With Russia A Risky Way Around Debt Problems

  • Michael Lelyveld

Washington, 20 July 1999 (RFE/RL) -- Kazakhstan's agreement this week to accept Russian goods as part payment for leasing the Baikonur cosmodrome has increased the region's reliance on barter to solve the problems of debt.

The deal has averted a standoff that could have led to the crash of the Mir space station, which must be re-supplied from Baikonur launch pads. But there are few signs from other recent barter deals that the solution will last, unless both sides are unusually careful to observe the terms.

Barter has threatened to become a fixture of Russian debt negotiations and key regional transactions. As a former basis for Soviet trade, it has been a familiar tool for coping with Russia's inter-enterprise debts and wage arrears.

But recent innovations suggest that barter may be entering a new sphere. A Gazprom bond issue this month, for example, was designed to appeal to investors who were forced to accept the exchange terms for Russia's defaulted debt from the crash of August 17. As in other forms of barter, the offering suggests that those who have been trapped by Russia's troubles may become a captive market, which inevitably decides to make the best of a bad thing.

Major deals involving barter include Russia's agreement last year to accept food and goods from Ukraine and Belarus in exchange for gas debts and continued energy supplies. In January, Turkmenistan also agreed to resume its long-stalled gas deliveries to Ukraine, which pledged 60 percent of its payments in goods and services.

As they are announced, each one of these deals offers fresh hope to parties that have found themselves deadlocked over past debts and cash shortages. Ideally, the payment in goods should support the theory that each country can grow more productive through exports that capitalize on relative strengths.

But debts and barter are essentially two sides of the same devalued coin. Many of these arrangements have failed for reasons that have as much to do with the Soviet past as with current problems. Payment in goods often appears no more reliable than pledges of cash.

In January, for example, Krasnoyarsk Governor Aleksandr Lebed refused to cooperate with a Russian deal to accept Ukraine's nuclear waste, charging that Kyiv's promises of goods and services were rarely fulfilled. In April, Turkmenistan halted its gas deliveries again after Ukraine ran up huge new debts of both cash and goods. Ashgabat cites progress on some construction projects using Ukrainian services, but it has also complained that Kyiv has placed high valuations on the goods it has shipped.

Russia has had similar trouble with the goods that it gets from Ukraine. The problem seems to be that the barter component of these deals is always left as a gray area so that difficult agreements can be reached.

In principle, barter has been used to facilitate deals where cash is lacking or debts are insurmountable. In practice, the acceptance of goods and services as payment is nearly always a sign of weakness in a bargaining position that resurfaces later on.

In Russia's case, the willingness to accept food and other goods from Ukraine in exchange for gas betrayed its fear of shortages after the ruble crisis and its need to keep Ukraine as a transit country for gas sales to Europe. Turkmenistan also needed Ukraine, in spite of its debts, because nearly all other gas markets are beyond its reach.

That knowledge has given Ukraine more room to delay deliveries of goods or to adjust prices. In these cases, the barter component has been little more than a way to buy time for deals with inevitable obstacles. Kazakhstan might well have anticipated non-payment when it negotiated the Baikonur lease agreement in 1994. Despite a rocket crash this month, it now has no choice other than to accept a re-negotiation to include barter. Russia simply has too many levers of power.

It is little wonder, then, that Western countries including Germany were wary of accepting Russian goods as part payment for debt when Moscow proposed it in March. Germany responded that it might take payment in oil, gas or gold, all commodities with a market price. Russia wanted to trade in manufactured goods, but it was certainly not in a strong position with the West.

Much of the regional heritage of barter comes from the Soviet clearing system of the defunct Council for Mutual Economic Assistance. Use of the "wooden ruble" left a wreckage of mutual debts that took years to clean up.

Russia eventually dealt with the problem by trading MiG aircraft and arms for much of the debt it owed to Eastern European countries, which reluctantly accepted the payment. The solution allowed the countries to get on with their trade. But the relics of barter may now come back to haunt the region rather than to solve its problems.

The risk is that reliance on barter will mask the deficiencies of bad deals and delay the monetarization of trade and finance. Its use for the purpose of paying debt may keep the issues from ever being resolved by simply shifting Russia's quarrels over payments to the arena of goods.