Russia vows to honour $150bn debts

Central bank head says there will be no default

RUSSIA'S CENTRAL bank chairman, Sergei Dubinin, yesterday sought to reassure City bankers that Russia's $150bn (pounds 90bn) in foreign-owned sovereign debt will not follow the $45bn in short-term treasury bonds into default.

"The government of Russia sticks to all previous commitments with respect of its debt," he declared in an exclusive interview with The Independent on Sunday. Mr Dubinin said Russia was counting on continued support from the IMF, but acknowledged that the negotiations currently taking place with the Fund "were not easy - were quite complicated".

Even if the IMF breaks off its loan programme as a result of the country's new economic policies, Russia regarded its foreign debt as sacrosanct and would "do its best" to meet its obligations to all foreign creditors, he said.

After a weekend of frantic behind-the-scenes deal-making, the Communist- dominated lower house of parliament, the Duma, is due to vote tomorrow on President Boris Yeltsin's nomination of Viktor Chernomyrdin as head of the new government.

The vote could resolve Russia's political crisis. But there is an even chance that the Duma will hold off on a final decision about Mr Chernomyrdin for another week.

Last week, Barclays Bank wrote off 90 per cent of all its outstanding exposure to Russia. Other Western bankers are adopting a similarly pessimistic view of the chances of repayment.

In a speech to Russia's upper house of parliament on Friday, Mr Chernomyrdin outlined a programme he termed "economic dictatorship" designed to tread a path midway between a reversion to Communism and the collapsed reform programme.

If the Duma approves Mr Chernomyrdin, he will print roubles in the short term to calm Russians fearful of a harsh winter without food, but then push through tough tax-collection measures and, with the help of former Argentinian finance minister, Domingo Cavallo, set up a currency board tightly pegging the rouble to the dollar.

"If Russia is to avoid a default on its sovereign loans, there must be a resolution of the political crisis and there must be official assistance to the country," said Arnab Das, a London-based Russia specialist for JP Morgan who is visiting Moscow for talks with officials and bankers.

Western bankers endorsed Mr Chernomyrdin's attempts to find a pragmatic middle ground between the discredited reformers and the Duma's Communist leader Gennady Zyuganov. But, they warned, Mr Chernomyrdin's appointment as Prime Minister remains highly uncertain.

A senior official in Moscow calculates that the servicing of Russia's foreign debt will cost the government $1bn a month between now and next May when a large repayment of restructured Soviet loans is due.

"We can fulfil this obligation," the official declared. "But, quite frankly, we are counting on the IMF money to do so."

On 15 September, the IMF is scheduled to disburse $4.3bn of the $22.6bn in funds committed to Russia.

Yesterday, the IMF's managing director, Michel Camdessus, harshly criticised Mr Chernomyrdin's plan to print roubles to pay the $11bn in back wages owed to Russian state employees.

Western banks exposed to Russia suffered heavy falls in their shares last week, many to 52-week lows. British banks with a total exposure of $600m in Russia, compared with $30bn for German banks, got off relatively lightly. But German and American banks took a pounding.

In response, financial institutions sought to wash the bad Russian news out of their share prices by giving details of potential losses. Deutsche Bank, Europe's second largest lender, disclosed that it was close to raising its loan-loss provisions on $751.3m in Russian loans to about a third of that total, while Credit Suisse declared a loss of at least $250m in Russia since 30 June.

The Russian official said the government was seeking to improve its cash flow by unlocking tax receipts frozen in the country's banking system, which has seized up since Russian banks stopped dealing with each other in the inter-bank market.

But he signalled the country was going to play tough on the restructuring of the approximately $20bn borrowed from foreign creditors by Russian corporate and private bank loans. "We have retained the law firm Cleary Gottlieb Steen & Hamilton to represent us", he said.

Start your day with The Independent, sign up for daily news emails
News
Disruption at Waterloo after a person was hit by a train
newsCancellations and disrupted service after person hit by train
Arts and Entertainment
music
Arts and Entertainment
The almost deserted Liverpool Echo Arena on Monday
tvCan X Factor last in the face of plummeting numbers auditioning
News
Kirsty Bertarelli is launching a singing career with an album of songs detailing her observations of “real life”
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence