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Russia: Official Explains 'Silly' Dispute With Paris Club, IMF

  • Andrew Tully

Russia's recent conflicts with its creditors and with the International Monetary Fund have drawn much criticism in the West -- and have at times embarrassed Moscow. The country's representative at the fund recently discussed these events during a seminar in Washington.

Washington, 20 April 2001 (RFE/RL) -- Russia's representative at the International Monetary Fund, Aleksei Mozhin, says his country's explanation for its dispute with some of its creditors is not as "silly" as it sounds.

But he says Moscow's decision not to work for a credit program with the IMF may have been "sillier" than it seemed.

Mozhin offered these assessments on Wednesday during a seminar on Russia's relationships with the international financial community. The discussion was held at the Center for Strategic and International Studies, a Washington think-tank.

In February, the Russian government paid only about half of the $1.2 billion in a debt repayment to the Paris Club. This is a group of creditor nations whose representatives meet periodically in Paris to consider debt payments.

At the time, Moscow said it could not pay the entire amount because it was not in the Russian Federation's budget. Then, in March, Russia decided not to accept a short-term credit agreement with the IMF, saying it did not need the money and did not want to submit to the conditions for the transaction.

At Wednesday's seminar, Mozhin conceded that it was "an awful public relations debacle" for Russia not to pay the full amount to the Paris Club. He said world opinion sided fully with the Paris Club, which said Moscow is required to make its payments in full.

But Mozhin said Russia's explanation for the partial payment -- that the money was not in the government's budget for 2001 -- is not "as silly as it sounds," as he put it. He said that at the time this budget was being drawn up, in the summer of 2000, Moscow's Paris Club creditors were indicating that they would accept postponed -- or "rescheduled" -- repayments. Mozhin said the creditors were confident that Russia could eventually make these payments because of the country's oil wealth.

Therefore, Mozhin said, the payments for the Paris Club were not included in Russia's budget for 2001.

"So when the government put together the first draft of the budget, they had been under the firm impression, based on their dialog with all the creditors and Paris Club members involved, that debt rescheduling was an offer."

But by autumn, Russia was getting a different message from its creditors: No rescheduling was being offered for 2001. The reason, according to Mozhin, was that the price of oil had been rising all year and showed no signs of dropping significantly in the near future.

Mozhin said it was a mistake -- but an understandable mistake -- for the Russian government not to submit an amended budget to the Duma that would have included the payments to the Paris Club. He said government officials had to choose between what he called the "messy" and "awkward" procedure of submitting these amendments, or to try to persuade its creditors to reschedule some of the debt.

"Apparently they feared the parliament even more than they feared the creditors. So the first choice was to confront the creditors. And of course we all know the outcome. And only after they realized that this whole conflict with the creditors was not giving them any benefit at all, they went back to the parliament and introduced the necessary amendments."

During this period, Moscow was negotiating a transaction with the IMF. Mozhin said that for a while, the government believed that the arrangement would include money from which Russia could draw cash for various uses, including payments to the Paris Club. But it learned -- again in the autumn -- that the fund planned only to offer what is called a "stand-by" credit. Under this kind of arrangement, the IMF makes the money available to a country, but the country is not expected to draw on the credit except in an emergency.

But the government eventually decided to decline the IMF credit. The reasons: The arrangement with the fund imposed what Moscow believed were intrusive conditions on Russia, without offering in exchange any actual cash.

This is a decision that Mozhin said perhaps should not have been made, for two reasons. First, he said, the credit would have been what he called an "insurance policy" for Russia's economy. Second, the IMF arrangement would have restored Russia's good credit on international capital markets.

Walter Russell Mead is a specialist in international economic affairs at the Council on Foreign Relations, an independent policy research institution in New York. He told RFE/RL that he agrees that Russia should not be too easy to reject the IMF's credit conditions because they can only serve to strengthen the country's financial system.

And he says Mozhin is correct in comparing the IMF "stand-by" credit with an insurance policy. The most frugal way to buy any insurance policy, according to Mead, is when you do not need it.

But Mead disagrees with Mozhin's assessment of how Russia dealt with repayment of its Paris Club debt. Overall, Mead says, Moscow has mismanaged its relationship with its creditors.

"They set a budget on hopes rather than on sort of solid expectations, and on a best-case scenario when it would have been more prudent to, you know, have at least made some budgetary provisions."

And Mead says it was not unreasonable for the Paris Club to withdraw any idea of rescheduling debt repayments when the price of oil remained high because Russia's increased revenues meant it could afford to repay on time.

But Mead says creditor nations should consider easing Russia's debt left over from the Soviet era. He says such a move would greatly help ease tensions between Moscow and the West.

"It is not in the larger political interests of Western Europe or the United States to have a kind of a poisonous debt problem, you know, further complicating what is already a complex and difficult relationship."

He says it is probably time for Western creditors to become "more creative" in their approach to Russia. He says they might urge Moscow to be more generous in its own dealings with countries like Ukraine, which owe large amounts of money to Russia. In return, Mead said, Russia's own creditors could do the same.