Russia's credibility hangs on debt restructuring deal
Monday 24 August 1998
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The initial plan announced last week but withdrawn after storms of protest from Western investors was seen as highly discriminatory against foreigners and tantamount to a partial default.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.
Actress sees off speculation about her appearance in an amazing way
The Washington Post editor helped Bob Woodward and Carl Bernstein bring down President Nixon
Children's bookseller wins The Independent's new author search
Board creates magnetic field to achieve lift
- 1 Salisbury ranked seventh-best city in the world to visit in Lonely Planet’s Best in Travel 2015
- 2 Disney announces new female-led film Moana
- 3 Banksy has not been arrested: Internet duped by fake report claiming artist's identity revealed
- 5 Russell Brand threatened with arrest after filming outside Fox News headquarters
Chicago voter tells Obama 'don't touch my girlfriend' – Obama stays super smooth
Oscar Pistorius: The brutal prison life that awaits disgraced athlete
Banksy has not been arrested: Internet duped by fake report claiming artist's identity revealed
Ebola outbreak: Nowhere is safe until virus is contained in Africa, claims the top doctor who beat it in Nigera
Raphael Ravenscroft dead: 'Baker Street' musician who played the most famous saxophone solo for just £27, dies aged 60
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Jose Manuel Barroso warns David Cameron against making 'historic mistake' over immigration reforms
Worst Airports of 2014: Poll names Islamabad airport in Pakistan worst in the world
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...
£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...