A new round of talks on Russia's debt to Western commercial banks is continuing today in London. The Russian delegation, led by Finance Minister Mikhail Kasyanov, is pushing for forgiveness of much of the more than $30,000 million in debt left over from the Soviet era. RFE/RL correspondent Floriana Fossato reports from London.
London, 25 November 1999 (RFE/RL) - The talks going on in London with the so-called London Club of creditor banks are the seventh round of negotiations held so far. But Russian Finance Minister Mikhail Kasyanov says this time, they are close to a breakthrough. He said yesterday that a deal to restructure $32,000 million of Soviet-era debt may be closed by December.
Some analysts, however, say that remaining differences on the details of debt restructuring could push talks several months into the coming year.
Russia punctually services its Eurobonds, as well as its debt to the International Monetary Fund. But it says it cannot pay its huge foreign debt, and it has missed several payments to the London Club over the past year.
For 15 months and four different Russian governments, Russia has been trying to hammer out a deal to restructure the Soviet-era debt. During talks in the German city of Frankfurt am Main last week, Russia and the Western commercial banks that form the London Club failed to reach a deal. Negotiators have relocated to London for more discussion.
Russia wants to be forgiven a substantial chunk of the debt -- 40 percent of it. And it seeks a grace period of seven years before it must begin to repay the rest. In exchange, Russia is offering additional government guarantees on the portion it would repay.
The proposal has not been warmly embraced by the creditors. To some, writing off 40 percent of the debt seems reasonable, but the seven-year freeze on repayments does not. Creditor banks also say that the only additional guarantee they are ready to accept would be Eurobonds, directly backed by the Russian government.
Arnab Das, an economist with JP Morgan in London, spoke with RFE/RL after the new round of talks opened yesterday. He said he does n-o-t expect agreement in the next week or two. But he added that there is great motivation on both sides to reach a deal. In his words: "The signal is that there is a debt restructuring process in train, and this default will not take several more years to cure, it will take several more months."
Many holders of Soviet-era debt, especially smaller ones, are disappointed with the course of talks and are accusing the big banks leading them of being too soft on Russia.
Jerome Booth, head of research at Hashmore Investment Management, tells RFE/RL that one of the main problems with the talks is that the majority of creditors are not represented at all. In his words: "A bunch of commercial banks are dealing with the issue, and they may have other goals."
Booth says that Russia's main problem is that of bad faith. He says that is why investors now want firm Russian government guarantees that the creditors will get at least some of their money back. And that is what is behind the push for guarantees in Eurobonds.
Skepticism about repayment remains despite the fact that Russian government revenues have been boosted by rallying prices for oil and metals, the country's main export items. Since the beginning of the year, oil prices have more than doubled. Meanwhile, a weak ruble has slashed domestic production costs in Russia, giving the economy an impulse to grow.
Still, Arnab Das of JP Morgan says, Western investors remain wary about the Russian economy. He says investors know that the Russian Federation may have 10,000 nuclear warheads, 150 million people, and two-thirds of the world's natural gas, but it has a budget that, in dollar terms, is less than 60 percent that of New York City.
But analysts say both Russian officials and Western creditors have reasons for pressing for an agreement soon.
One milestone approaches on December 2, when a $550 million coupon payment to service the debt falls due.
And the Russian government would like to see a deal completed before December 19, when Russians are scheduled to elect a new lower house of parliament.
Investors, in turn, are thinking about Russian presidential elections, due in June 2000. Western investors worry that the presidential election may change the political situation in the country and, consequently, worsen the climate of restructuring talks.
Finance Minister Kasyanov fueled market hopes of a deal yesterday, when he said there was a chance of a basic agreement as soon as today. Still, even he added that details would take longer.