Russia in talks to hold off $2.7bn debt payment

RUSSIA WAS yesterday discussing a deal to postpone up to $2.7bn in payments due this year and next on $32bn of bank debt dating from the Soviet era. Negotiations started in Frankfurt yesterday with the London Club of commercial bank creditors following the weekend Paris Club agreement to reschedule repayments of $7.5bn on its $38bn official debt.

The deals will allow the release of $4.5bn in new loans from the International Monetary Fund. A recent scathing IMF assessment of Russian economic policies said the restoration of relations with creditors must be a priority.

A team from the fund is due to arrive in Moscow on 24 August for a 10- day visit. Future disbursements under the IMF programme would depend on the government keeping up its agreed debt interest payments.

The World Bank yesterday released $100m out of a $1.2bn package to Russia, in its first new lending to the country since last year's financial crisis.

Russia's creditors, led by Deutsche Bank, were relieved that the officials from 18 countries involved in the earlier Paris club negotiations had not made big concessions. None of the debt has been written off.

Yet the agreements will also give Russia a breathing space in its efforts to stabilise the currency, as debt servicing has sharply reduced central- bank reserves. The rouble, which crashed in August 1998, has been under downward pressure because of private capital flight of some $40bn a year in 1996-97 and $20bn last year and this.

The IMF's assessment put the blame for last year's crisis and continuing economic catastrophe on political failures. The executive directors said the crisis was "due mainly to the failure to tackle ... longstanding fiscal problems and to implement agreed structural reforms". It said there must be political support for reform, especially in collecting taxes from large enterprises.

The IMF also condemned the central bank's diversion of an earlier IMF loan through an offshore bank, disguising the level of its reserves.

Two-thirds of Russia's outstanding foreign debt of around $150bn dates from before February 1992. The government has kept up all payments on post-Soviet debt, but defaulted on the older debt a year ago.

Further negotiations on the debt burden are likely after next June's presidential elections.