Seeking Debt Relief, Russia Says It Will Miss Repayments

Playing hardball with Western governments to win further debt relief, Russia confirmed Tuesday that it does not intend to make all of its scheduled repayments this quarter to the Paris Club of creditor nations.

Prime Minister Mikhail M. Kasyanov told reporters that his government failed to budget to meet its full repayment obligations and that he has asked Finance Minister Alexei L. Kudrin to quickly begin negotiations with the Paris Club members.

“Uncertainty concerning the sources of additional revenue is growing,” the prime minister was quoted as saying by the Interfax news agency. Kasyanov said the harsh winter in eastern Russia and Siberia is straining government finances.

Russia’s 2001 budget, adopted late last year, allocated $1.24 billion for payments to the 18-nation Paris Club, but the group is owed $3.4 billion under the current schedule--meaning there will be a shortfall of $2.16 billion for the year.

When Russia was drawing up the budget, explained Kasyanov, it was anticipating debt reduction from the Paris Club creditors and a new loan from the International Monetary Fund.

Most analysts see the Russian action as a tactic by President Vladimir V. Putin to press Western governments--mainly Germany and Italy, which hold the lion’s share of the debt--to grant more lenient terms for repayment of Russia’s Paris Club liabilities, which the present government inherited from the former Soviet Union. The debts total $48 billion, about $3 billion of which is owed to the United States.

Russia received one major restructuring from the West last February: The London Club of commercial creditors wrote off $10.6 billion in debt and agreed that $21 billion could be paid back over 30 years after a seven-year grace period. Since then, the Kremlin has been asking for similar concessions from governments.

But it has been a hard sell. “In view of the good economic situation in Russia, the [German] government and the other Paris Club members expect Russia to fully meet its payment obligations,” Germany’s Finance Ministry said last week.

German Chancellor Gerhard Schroeder carried the same message to Putin during a visit to Moscow over the weekend. On Sunday, Putin announced in Schroeder’s presence that Russia still intends to honor Soviet-era debts, but he also said that Western governments should not put so much pressure on Russia that it causes the economy to falter.

“The Russian government is pushing its luck a little bit, playing on the verge of a foul,” said analyst Marina Ionova, chief strategist with the Aton Capital Group in Moscow.

She described as Russian brinkmanship the effort “to establish whether it can change the creditors’ positions by using old Soviet bluffing methods.”

Ionova said that, technically, Russia is already in default because it failed to make a series of small payments due Jan. 1 and 2. Russia blamed the delay on the New Year’s and Orthodox Christmas holidays and said it would pay a $100-million installment today.

Unfortunately for Russia, said Ionova, its push for restructuring is coming at the worst possible time.

“First of all, everyone knows that Russia has the money to pay, and no creditor in sound mind will ever agree to reschedule debts if the borrower is solvent.” Second, European governments need the money, she said, because they had a bad year in 2000 coping with high energy costs. “When you are short of money and every billion matters, you will act tough.”

Russia maintains that it has started consultations with the Paris Club and is therefore not legally in default on its obligations.

Officials have said they hope for a sympathetic hearing when IMF representatives visit later this month, and they say formal talks with the Paris Club could start sometime after that.

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Alexei Kuznetsov of The Times’ Moscow Bureau contributed to this report.