The Absence of a Fee is the Bonus
// Russia will pay out debts to the Paris Club
Yesterday, Reuters news agency, quoting its sources among the top management of the Paris Club, who wished to stay anonymous, published that the Club is ready to receive the payoff of the Russian debt. The debt is appraised to be $43 billion with the early payment. Earlier Russia wanted to get a 10% discount for early payoff, but creditors instead wanted to charge Russia a fee for the same 10%.
On Feb. 11 of this year, President Vladimir Putin invited Alexei Kudrin, Minister of Finance for a discussion of important economic issues. One of the high priority issues was the early pre-payment of debt owned to the Paris Club (see Kommersant from Feb.12). Before the consultations with the Minister of Finance, Putin had a meeting with James Wolfensohn, exiting President of the World Bank, where the Russian president said that Russia would like to pay-off early all its debt to IMF, and also to settle an account with the Paris Club, “if it will be economically profitable.” Then Kudrin went to London to participate in a conference of G8 Ministers of Finance. There he tried to negotiate a 10% discount for an early loan close. Kudrin’s efforts were futile. In fact, Caio Koch-Weser, German deputy minister of Finance, said that Russia can not expect leniency on the loan conditions and any discounts because its high oil revenue and a growth in the country’s credit rating. Moreover, it is a matter of principle for countries –members of Paris Club -- to get the debt payment in accordance with market rates because these countries “should respect their own taxpayers.” Let’s notice, that the Paris Club was always able to make Russians pay. For instance, in the beginning of 2001 Mikhail Kasyanov’s government was trying to get from the Club another delay on the loan payoff. But the club made such a big international scandal about it that Russia decided to start the payments and for already four years didn’t break the schedule. But the reduction of the debt is very slow.
Kudrin, during the consultations with Putin, pointed out that despite the fact that all external debt in the beginning of 2005 was only $115 billion (30% of Gross Domestic Product – twice less than in USA), Russian maintenance cost of debt is three-four times higher than in any Western country. The annual rates are from 7 to 13%. For that reason, it is vitally important to payoff immediately part of the loans because it will bring substantial savings on the rates charges.
The President answered to that: “The economical advantage is to pay it (debt –K) off as soon as possible is evident.” Last week, Igor Shuvalov, President’s aid, expressed the opinion that early closing of the Paris Club loan would be economically profitable. Russian authorities stopped insisting on discounts, but categorically disagreed to pay out premiums to Western creditors.
So, yesterday Reuters published that, according to its sources, the Paris Club made a decision not to charge a premium for an early payoff for the Russian debt and is ready to accept the exact amount of money owned. This decision was made despite earlier Club statements about market principles and loss for Western taxpayers. News agency connected this decision with the close future official visit of Putin to Germany for the opening of the Hanover Industrial Fair. It is not a secret that Germany is not only the biggest creditor of Russia, but also shows big interests to use Russian debts on financial markets with maximum profit for itself. Germany has a high budget deficit. The agency also noted that yesterday the Paris Club meting didn’t have Russian debt on its agenda. But Koch-Weser might have a meeting on Thursday with Kudrin in Moscow, where the whole debt repayment deal will be settled.
Sergei Minaev, Konstantin Smirnov
All the Article in Russian as of Apr. 06, 2005
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