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The initial plan announced last week but withdrawn after storms of protest from Western investors was seen as highly discriminatory against foreigners and tantamount to a partial default.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.
- 1 Scottish referendum: So how about the English now being given a chance to split from England?
- 2 Friends 20th anniversary: Alison Jackson photographs reunited cast
- 3 London council removes 'unacceptable' Stamford Hill posters telling women which side of the road to walk down
- 4 The response to my Pizza Express review has been overwhelming, and taught me a lot about journalism
- 5 Free U2 album: How the most generous giveaway in music history turned into a PR disaster
Scottish independence referendum: Frankie Boyle reacts to nation's 'No' vote - 'To be fair, I've always hated Scotland'
London council removes 'unacceptable' Stamford Hill posters telling women which side of the road to walk down
Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Scottish referendum: Police struggle to control Unionist rally in Glasgow's George Square
Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...