Russia Reveals Grim Extent of Debt

Russia’s escalating financial crisis is fomenting social unrest, and its debts have amassed to a shocking 44% of the country’s net worth, Prime Minister Sergei V. Kiriyenko warned Friday.

His disclosures, in a speech to the upper house of parliament, succeeded in winning support from the Federation Council for the government’s stabilization program. They also are likely to intensify pressure on international lending institutions to bail out Russia.

But Kiriyenko’s sobering observations also shed light on the swiftly accelerating nature of Russia’s crisis as the country borrows more staggering sums at mounting interest rates each week to pay off earlier debts.

“The financial market has practically ceased to exist,” the dour prime minister told lawmakers, whose approval in principle of the crisis-easing measures means little unless the more contentious lower house votes likewise. “Tensions are rising in society, and this is naturally not helpful for stabilization.”

Government debts now amount to 44% of Russia’s gross domestic product, he noted. That confronts this country with woes analogous to what an American family might face if it had a household income of $100,000 a year and $44,000 in debts on credit cards with soaring interest rates.

Only a month ago, the prime minister put the debt at less than one-third of the GDP. The percentage of debt has risen sharply in part because Russia has had to borrow at higher and higher interest rates to retire maturing treasury bills.

In visible testimony to Kiriyenko’s warnings of brewing unrest, striking miners continued to disrupt freight traffic on the vital Trans-Siberian Railroad for a seventh day; politicians from both government and opposition ranks predict the worst is yet to come.

“The peak of social discontent has not been reached yet,” warned Moscow Mayor Yuri M. Luzhkov, who harbors ambitions of succeeding President Boris N. Yeltsin in the next elections.

Russia’s recurring liquidity problems have been made worse in recent months by financial instability throughout emerging markets and by the global slump in the price of oil--this country’s No. 1 hard-currency-earning export.

The oil glut has already deprived Russia of $7 billion in expected revenue this year, and Kiriyenko said he feared that the shortfall will swell to $15 billion by the end of the year, forcing the government to delay more wages and pensions to state workers or to default on its mountain of debt.

“We are willing to consider any proposal, but we simply cannot fail to repay treasury bills,” Kiriyenko told lawmakers who had urged the government to divert some of the debt-servicing funds to pay overdue wages to restless workers and impoverished retirees.

Russia has relied on sales of its abundant oil to fill government coffers and make up for its chronic failure to collect taxes.

The plunge in oil prices has also delayed a vital cash infusion from the planned auction of shares in the state oil giant Rosneft.

The Privatization Ministry announced Friday that it is postponing the sell-off of 75% of Rosneft shares from this month until late October, in hopes that the market will recover enough to entice bidders at what is now an unrealistic starting price of $1.6 billion.

The economic news has been so overwhelmingly negative in recent days that even frail Yeltsin has decided to postpone a vacation that was to have started next week.

He met with defense and national security officials Friday in a television appearance that seemed designed to show a tough and concerned leader at the helm.

Anatoly B. Chubais, Yeltsin’s special representative to international financial institutions, has been lobbying officials of the International Monetary Fund and the World Bank for an additional $10 billion to $20 billion in loans to allow Russia to restructure its debt.

Chubais has predicted an agreement within days, although the lending agencies have suggested that the Kremlin first win parliamentary backing of its stabilization plan.

Yeltsin’s Communist and nationalist opponents in the state Duma, the lower house that is in recess until Wednesday, seem little inclined to raise taxes to bail out the government.

But Yegor S. Stroyev, the Federation Council chairman, told Kiriyenko that he is confident the package of new taxes and spending cuts will win approval before the parliament’s long summer recess begins July 22.

Tax collection is the main point of friction between Russia and the lenders, as the federal government has been lax in pressing even some of the richest industrial debtors to pay arrears. It also has so far failed to trim spending to accommodate the drop in projected income.

Visiting European Union Commissioner Hans van den Broek called on Russian leaders to make peace with political opponents for the benefit of the country, noting that the leadership will not be able to overcome the crisis on its own.

Despite the quickening erosion of Russia’s economic health, Van den Broek said European officials agreed with the Kremlin that a ruble devaluation would do much more harm than good. Devaluation would undermine the entire banking system and spur a new bout of inflation after nearly three years of stable prices, he said.

Panicked Russian and foreign investors have been scurrying to pull their rubles out of tumbling markets and trade them for more stable dollars, which has drained Russia’s hard-currency reserves to $11 billion from $24 billion only two months ago.

Unless the IMF and the World Bank come through with a debt-restructuring package, three-month treasury bills issued at 100% interest over the last few weeks to gather enough money to pay off older obligations will mature in the autumn and send the debt level soaring even higher.

Officials close to the negotiations between Russia and the IMF said the parties’ talks had stalled, with the lending agency insisting that Moscow take firm steps to put in effect some of its planned reforms, and Russia contending that its pledges should be enough.

Meanwhile, Yeltsin discussed Russia’s economic problems with President Clinton in a 20-minute phone call Friday. White House Press Secretary Mike McCurry said Clinton expressed his support for Yeltsin’s position and his desire to wrap up the negotiations between Russia and the IMF.

“They have done a lot of work to satisfy some of the concerns that have been raised by IMF officials who are in Moscow,” McCurry said. “The United States government certainly agrees that Russia needs an IMF program that works, one that the Russian government is both capable of implementing and that addresses the country’s most pressing financial and structural problems.”

Saying there is much Moscow could do by itself--such as improving its tax collections--McCurry repeated the administration’s willingness to provide support to Russia, not unilaterally but as part of a multinational effort, “so we don’t have to pay for all of it ourselves.”

The White House decision to nudge the IMF in public is unusual. U.S. officials have a major voice in the lender’s decisions and historically have exercised influence from the inside.

But this issue is viewed with great concern in Washington because the collapse of the ruble could send the Russian economy into a tailspin. That could cause political turmoil that could boost hard-liners and nationalists, leading to strained relations between Washington and Russia, a longtime adversary and possessor of a huge nuclear arsenal.

The White House intervention in the Russian-IMF talks also reflects fears of top presidential aides that if the negotiations are not resolved quickly, uncertainty could spark adverse reaction in global financial markets.

Russia is not a major financial player there, but its close ties with key groups of countries make it a major worry for Washington.

Times staff writers Art Pine and Elizabeth E. Shogren in Washington, D.C., contributed to this report.

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Economic Slide

The fragile Russian economy has suffered a precipitous decline in recent weeks. A look at two key components:

Internal debt: Debt as a percentage of gross domestic product has soared.

Month ago: 30%

Today: 44%

****

Hard currency: Reserves of foreign currency plummeted as Russian sought to prop up the ruble.

(In billions)

Two months ago: $24

Today: $11

Source: Staff reports; World Bank.

Researched by CAROL J. WILLIAMS / Los Angeles Times