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The Economist (UK)
December 1-7, 2001
Russian finance
Bang on time
What's this? Russia redeeming its debts?

WHAT a happy coincidence: just as falling oil prices start putting Russia into a financial squeeze, the country returns to respectability. One big reason is the chance that September 11th has given Russia to polish its image.

In the financial markets, spreads of Russian bonds denominated in dollars have fallen by two percentage points—potentially a huge saving, if the country now chooses to refinance part of its $138 billion of foreign debt. The relatively blissful economic conditions of the past two years (a high oil price and the benefits that can be banked from a huge devaluation) mean that Russia has been treating its main creditors properly of late.

This week it paid back a $1 billion eurobond to some cheery, and shrewd, investors. Its price had quadrupled since the Russian financial crisis of 1998 (see chart), when the country defaulted on large chunks of its debt. In fact, sovereign eurobonds have always been a pretty good bet. After the collapse of the Soviet Union, Russia honoured the evil empire's eurobonds even as it was reneging on other debts. Russia has never missed an interest payment on its own eurobonds, in sharp contrast to its treatment of other obligations. Even so, the sight of any Russian debt being paid back in full and on time is rare, and encouraging. It will no doubt ease Russian borrowers' return to the international markets in the coming months.

Another encouragement is that Russia is about to go back into the black at the International Monetary Fund. After an early repayment of $1.7 billion in October, it needs to repay only $700m more in order to have a debt smaller than its outstanding quota at the Fund.

The question now is whether Russia will again try to reschedule its $39 billion of Paris Club debt to western governments, of which $4 billion falls due next year. So far Germany, the biggest creditor, has argued strongly that Russia's bulging central-bank reserves ($38 billion) and current-account surplus ($39 billion, or 12% of GDP) mean that there is no case for a restructuring; and President Vladimir Putin has said that Russia will not seek one. That may change, though, if the oil price dives deeper.

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