Russia's credibility hangs on debt restructuring deal

THE RUSSIAN financial crisis deepened last night after President Boris Yeltsin sacked the entire cabinet, casting new doubt on a crucial debt restructuring plan which was to have been announced today.

The new government moved last night to quell Western concern of a full or partial default by putting its Deputy Prime Minister, Boris Fyodorov, directly in charge of working out the details of the restructuring. A spokesman for Mr Fyodorov said he still hoped a resolution could be announced today.

The deal affects some $40bn (pounds 25bn) of short-term debt caught by the 90-day moratorium which accompanied the devaluation of the rouble last week.

Western banks were locked in crisis meetings with officials from the Russian government when the news of the change of government broke, fighting to ensure that new terms would not discriminate against foreigners.

The initial plan announced last week but withdrawn after storms of protest from Western investors was seen as highly discriminatory against foreigners and tantamount to a partial default.

Critics led by Credit Suisse First Boston, which faces potentially huge losses, said last week's plan would have resulted in foreigners ending up with one-third of what domestic investors would receive.

The beleaguered government called the moratorium in the hope of cutting the huge amounts it is having to shell out to service its debt. Bankers say the government was still intending to swap short-dated rouble bonds known as GKOs and OFZ, for four to five-year bonds with the same face value but with much lower yields.

However, bankers feared the Russians were still trying to include in any package a write-off of at least part of the accumulated debt, which is opposed in principle by Western bankers.

CSFB warned that for the Russians to persist with a deal which discriminated against foreigners would result in their being locked out of global capital markets altogether at a time when Russia is desperate for foreign investment.

There are also subsidiary concerns about developments in the Moscow foreign exchange market, MICEX. Foreign bankers claim that the exchange has taken advantage of the confusion of the past week to seek to get out of paying margin calls on futures contracts. It is estimated that around $1bn of trades could be affected.

The new government will be pressed for help in resolving this issue as a way of sending the right signals to a highly sceptical market.

The sacked prime minister, Sergei Kiriyenko, had only been in office for four months, having been brought in to replace Viktor Chernomyrdin, ostensibly as new blood to speed up the space of financial reform. Mr Chernomyrdin returns as acting Prime Minister.

Under Mr Kiriyenko the Russian economy continued to deteriorate to the point where last week's devaluation became unavoidable. The debt moratorium fiasco was seen as bearing Mr Kiriyenko's stamp.

However, the decision to remove Mr Kiriyenko appears to be motivated less by a need to placate irate Western bankers than by Mr Yeltsin's instinct for self-preservation. It followed a strongly-worded weekend resolution in the Duma, Russia's parliament, calling on the President to resign.

Analysts said the big business clique which effectively calls the shots in Russia had been prepared to dump Mr Yeltsin. Mr Chernomyrdin, 60,has a reputation for backing the interests of traditional heavy industry against the newer entrepreneurial class.

Analysts fear that without the deal which investors were expecting today, the markets could react badly to the news.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
Lena Dunham posing for an official portrait at Sundance 2015
people
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Sport
Bradford City's reward for their memorable win over Chelsea is a trip to face either Sunderland or Fulham (Getty)
football
News
Lars Andersen took up archery in his mid thirties
video
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

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea