Russia pays off USSR’s entire debt, sets to become crediting country
Russia does not owe a cent to the countries of the Paris Club of Creditors. According to an official statement released by the Finance Ministry yesterday, Russia is no longer a debtor of the Paris Club. In addition, Russia may become a crediting country within the framework of the Club.
The debt of 45 billion dollars, the burden of which Russia had to carry after the collapse of the Soviet Union, has been paid off completely. Moreover, Russia cleared the debt ahead of schedule. Vnesheconombank, the agent of the Russian government to serve the foreign debt of the former USSR and Russia, transferred the remaining part of the arrears - $23.7 billion – during the recent four days. The payments have been done in nine different curries, the press service of the bank said.
Officials of the Finance Ministry are certain that the early payment of the debt to the Paris Club of Creditors will only improve Russia's international image as a financially stable debt. The final payment to the Club, which Russia made yesterday, may earn the country a reputation of an honest borrower which tries to ameliorate its investment climate.
The Soviet Union left a huge debt after its collapse. Russia became the only country to inherit not only the foreign property of the former USSR, but all of its foreign debts as well. It was extremely hard for Russia to serve the debt because the economy was declining steadily in the beginning of the 1990s. The Soviet debt had been restructured four times before the default of 1998. By 1999 Russia managed to either write off or delay the payments to private creditors (the London Club, for instance). However, such a compromise proved to be impossible with the Paris Club of Creditors.
World prices on oil literally saved Russia from another financial catastrophe. Oil prices have been rising very fast since the beginning of the new century, which gave Russia an opportunity to complete major payments ($17 billion) to the Paris Club in 2003. As a result, Russia has become one of the most solvent countries of the world.
Russia’s current economic development speed reaches six or seven percent a year. The country enjoys a favourable balance of trade and deficit-free state budget. Russia takes the third place in the world on the level of gold and forex reserves with over $265 billion. The early debt payment to the Paris Club of Creditors became possible only because of the ongoing growth of the economic and financial power of the Russian Federation.
According to experts’ estimates, the debt to the Paris Club was the largest, politically relevant and most complicated category of the country’s foreign debt. Financial analysts say that non-market debts similar to the Paris Club debt is more typical of third world countries, whereas Russia positions itself as a member of the Group of Eight. In other words, Russia is supposed to act as a creditor for poor countries.
Russia made its first prescheduled payment to the Paris Club one year ago, when the country paid 15 billion dollars. It is worthy of note that Russia cleared the debt to the International Monetary Fund in 2005 too - $3.3 billion. The agreement on the second tranche was achieved on June 16 in Paris. The conditions were different, though. The creditors insisted on a one-billion-dollar bonus, which was also meant to partially compensate financial losses of the ineffective interest payments.
The extra payment of one billion dollars pales in comparison with the amount which Russia saves as it pays off the debt ahead of schedule. “The federal budget will save over $12 billion on interest payments to the Paris Club of Creditors till 2020,” an official statement from the Finance Ministry of Russia said.
Finance Ministry officials hope that Russia will be able to become a creditor within the scope of the Paris Club of Creditors in the future. However, the completion of payments to the Paris Club does not dot all i’s in the debt history of the former USSR. Russia still has to serve the debt of several countries not listed as Paris Club members. The debt is evaluated at three or four billion dollars.
Translated by Dmitry Sudakov
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