LAST SOVIET BURDEN

History

August 21st has seen the last financial burden left since the times of the USSR lifted from Russia’s shoulders. The Finance Ministry transferred $22.5bn of Soviet-era debts via Vneshekonombank to the Paris Club.

Russia took up Soviet debts after the collapse of the Soviet Union. According to the agreement signed by former Soviet republics, Russia was made solely responsible for these debts. In exchange, it got rights for foreign property owned by the USSR.

Since the mid-1980s, the Soviet government started borrowing money and by 1991 the debt totaled $93.3bn. The largest share of loans was taken from the Paris Club, a group of 17 creditor nations. It was due to expire on 20 August 2020.

The Paris Club formed in 1956 is an informal group of creditor governments from major industrialized countries.

The members of the Paris Club which were creditors of Russia are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States of America.

Why Russia Paid Early?

It was the initiative of the Russian side to give back the debts early. There are several reasons for this. First, the interest rate of 7% was too high by international standards. But the communist regime was in the agony, torn by the arms race and other issues, and was prepared to clutch at any chance of staying afloat.

Second, the soaring oil prices have pumped up revenues to the budget and allowed the government to focus on better spending rather than desperately seeking resources.

It was hard to persuade the Paris Club nations to take their money back. Lengthy negotiations bore fruit. Last year, Russia has made its first early payment, and now it officially repaid its debt to the Paris Club.

The $22bn debt was paid back with a compensation for lost interest, which was estimated at one billion dollars.

The Russian foreign debt now amounts to just 9% of its GDP, the lowest index in the world.

Obvious Benefits

International rating agencies will certainly not miss the fact, and upgrade Russia’s rating. It would imply safer business for foreigners and draw more investors into Russian economy.

The Russian finance ministry said the debt repayment would save the country over $12bn in debt costs until 2020. So now this money could be channelled into investment.

The same could happen to Russian companies who now might take loans from international organizations at lower interest rates. Furthermore, Russia now wants to turn from the lender to the creditor and actively give loans to other countries.

Christopher Green, senior economist at the Moscow Narodny Bank in London, said that the move had political implications as well as making economic sense. “It reflects the emergence of Russia as an economy on to the global stage,” he said.

Russian Property Abroad

The estimates of its cost vary. Currently, analysts put it at $300-400bn although a look at the price list shows that the cost of some sites might be underestimated. In total, there are some 3645 objects in 120 countries of the world.

Ukraine and Georgia now lay claims to the property. They want their share and say they could pay the corresponding part of the debt.

Debts To Russia

Russia's Finance Ministry said Monday the debt of foreign countries on credits granted by the former Soviet Union and then Russia totaled more than $68.9 billion as of January 1, 2006.

The ministry said the main debtors were China ($1.4 billion), Korea ($4.4 billion), Iraq ($9.4 billion), Syria ($1.4 billion), Albania, Algeria, Vietnam and India.

Sasha Shein