April 1, 2001｜Russia
Director General, International Finance Department II, Japan Bank for International Cooperation
Last January, without the agreement of the Paris Club of creditor nations, the Russian government unilaterally stopped repayments of the original principal of the debts left over from the former Soviet Union that had become due. When the country met with opposition from the creditor nations including Germany, which headed the list, and also failed to gain the IMF’s approval for debt rescheduling, the Russian government promised to honor all the debts of the former Soviet Union that were due for repayment in 2001. The government started to pay off its debts, including the arrears. This hiatus in repayments was said to be the intention of Prime Minister Kasyanov, who made his name when he solved previous debt-related problems. However, it is a pity that President Putin, who stresses the importance of reviving confidence in the Russian government, approved such folly. It is said that since last year, President Putin’s economic adviser has been advising him to repay the 2001 Paris Club debt.
Over the last two years, Russia has accomplished economic growth and emerged from the 1998 financial crisis; a new president took office, the political situation has stabilized and the country has gradually been regaining the confidence it had lost. However, it is undeniable that the country has tarnished its credibility again with this latest nonpayment issue. In particular, in the world of international finance, the following observations have been made: as people connected with the Russian government proudly visited countries to explain Russia’s vastly improved micro-economic situation, such as the positive growth of GDP, the achievement of a fiscal balance surplus, high earnings on the current account surplus and the resultant doubling of foreign currency exchange reserves, nobody was concerned about its repayment capacity for foreign debts for 2001. However, the reality is that Russia stopped repayment for such reasons as the government has not earmarked any money in the federal government budget for this fiscal year for the repayment of the original principle, and it has to reserve its foreign currency to repay a large quantity of debts in 2003. In these circumstances, people argue that it is meaningless to conduct economic research and examine the capacity for repayment. Furthermore, those connected with the Paris Club criticized Russia’s response: if the Paris Club allows the rescheduling of debt repayments for the abovementioned reasons in the case of Russia, whose economic condition is good, and which has a payments surplus and reserves of foreign currency equal to six or seven months worth of imports, all debtor nations will ask for rescheduling just because they have not earmarked the money in their budgets. Since Russia is not only a member of the Paris Club, but also a member of G8, the country ought to be aware not only of its domestic problems, but also of the influence of the nation’s conduct.
I visited Moscow last month and talked to government officials and businesspersons about the nonpayment issue. I was relieved to hear criticism of the Russian government’s response from most Russians. They said things like, “The Russian leaders don’t understand the true meaning of “trust” and “credit”, even though they mention the words frequently. If they truly understood, they would not have opted for nonpayment. This nonpayment problem may have taught the Russian government a good lesson.” and, “Russia has understood very well from this experience that it should not depend too much on the goodwill of international society.” I would like the Russian leaders to listen hard to such criticisms, so as not to repeat such folly.
[Translated by ERINA]