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The initial plan announced last week but withdrawn after storms of protest from Western investors was seen as highly discriminatory against foreigners and tantamount to a partial default.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
ebooks
ebooksAn introduction to the ground rules of British democracy
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: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'