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Russia: Franco-Russian Accord Near On Tsarist Bonds?

Prague, 26 November 1996 (RFE/RL) - Russian Prime Minister Viktor Chernomyrdin today began a two-day visit to Paris expected to be dominated by his promise to honor the debts of the former Tsarist regime, long a stumbling block in Franco-Russian relations.

Some 400,000 French men and women are estimated to hold bonds issued in the Tsarist era that have never been redeemed either by the Soviet Union or the Russian government.

Before flying to the French capital last night, Chernomyrdin told reporters: "We'll settle this issue...We'll pay all our debts." But he did not provide any details of how the complicated debt issue would be resolved.

Four years ago, Russian President Boris Yeltsin pledged to compensate French investors as a part of a bilateral cooperation and friendship treaty he signed with former President Francois Mitterrand. No money, however, has since been turned over to French bond-holders.

Earlier yesterday, amid reports that Paris and Moscow were close to reaching a new accord on the outstanding debt, the French stock exchange suspended trading of the bonds. But a group representing more than 8,000 French bond-holders remained cautious about prospects for a resolution of the debt.

Joel Freymond, an official of the French Association of Russian Bond Holders -- known by its French acronym AFPER -- said "we're still waiting for a concrete proposal from the Russians. Chernomyrdin has promised to pay the debts back before."

Opposition from AFPER and other bond-holder interest groups last week prevented the trading in France of a new $1 billion issue of Eurobonds, the first such international offering made by Russia since World War I. Despite active campaigning abroad by French bond-holders, the high-interest bonds quickly sold out on international markets.

The investor groups have been trying for years to get Russia to redeem what remains of the 30 million Tsarist bonds sold in France during the four decades before 1914 -- an estimated 13 percent, or four million bonds. They claim the successors of the original buyers are owed close to $30 billion, a sum that takes account of unpaid interest accumulated since the 1917 Bolshevik revolution.

French bond-holders are unlikely to get anything near that sum. Late last month, Russian Finance Minister Alexandre Livshits said Paris and Moscow were close to making what he called a "symbolic gesture" on redeeming the bonds.

Livshits and other Russian officials have said repeatedly that whatever sum is agreed upon will have to be offset by the return of Russian assets seized by France after Communists took power. The assets are known to include a large holding of Russian gold deposited in French banks during Tsarist times. That complication has made it possible for Livshits to maintain that redemption of the Tsarist bonds is really an issue between the bond-holders and the French Government.

Over the years, the Tsarist bonds -- which financed large-scale projects such as the Trans-Siberian railroad -- have come to be considered worthless by many French who possessed them. Some destroyed the bonds, others sold them as collectors items or at flea markets, still others even used them as for wallpaper. Comedians made the apparently valueless paper the butt of jokes.

But the redemption of some 90 different kinds of bonds still in circulation remains a serious issue for both Paris and Moscow. The French Government must somehow satisfy the demands of those of its citizens still holding the certificates. And the Russians must end the decades-long row once and for all in order to join the so-called Paris Club of creditor nations -- as a creditor rather than a borrower. Moscow needs to join the Club in order to allow it to negotiate the return of large Soviet-era debts owed to Russia by developing nations.

With important interests of both countries at stake, there is a good chance some compromise formula will be found. If a compromise is reached, it is likely to be announced at a press conference later today held jointly by Chernomyrdin and French Prime Minister Alain Juppe.