Sun, May 15, 2005 - Page 11 News List

Russia reaches debt repayment deal with Paris Club countries


Russia reached a deal with major creditors on Friday to pay off US$15 billion of its foreign debt over three months, consolidating the country's steady return to a sound financial footing.

The debt buyback, approved by the Paris Club of creditor nations after three days of talks, will save Moscow US$700 million in annual interest payments beginning next year, senior Russian negotiator Sergei Storchak said.

Paris Club president Jean-Pierre Jouyet said the deal underlined how far Russia had come since it was forced to reschedule repayments on its mostly Soviet-era debt in 1999, in the wake of a financial crisis and currency devaluation.

"Five years ago, nobody would have imagined that we'd now be in a position to reach such an agreement on such a large sum," Jouyet said.

The deal is part of a Russian drive to improve its financial standing and reduce borrowing costs. Finance Minister Alexi Kudrin confirmed that the June-August buyback will be funded by the government's 860 billion-ruble (US$31 billion) "stabilization fund" -- boosted by the soaring oil prices and export revenues of the past two years.

"This settlement is very lucrative for Russia," Kudrin said in Moscow.

Russia's debt is equally lucrative for creditors, thanks to its high interest rates. Germany, its biggest Paris Club creditor, was initially reluctant to forego future interest revenue on its euro5 billion (US$6.3 billion) share of the deal and was holding out for an extra premium in exchange for the early repayment, said a person close to the talks.

The final buyback deal, at face value, was finalized after Germany dropped its demand on Wednesday, said the person, who spoke on condition of anonymity.

Berlin's strained public finances are in need of a cash injection -- a factor Russia tried unsuccessfully to exploit when it proposed last year to buy back Paris Club debt at a discount to face value, only to be turned away.

"Germany welcomes this decision, both in terms of the size of the repayment and the timing," said German Deputy Finance Minister Caio Koch-Weser in Luxembourg, where he was meeting with other EU finance officials.

The Paris Club said participation in the buyback remains voluntary for members, but an "overwhelming majority" including Germany and Italy -- Russia's No. 2 creditor in the group -- have already committed themselves.

The agreement reduces Russia's Paris Club debt to US$25 billion and its total foreign debt to about US$100 billion. Moscow hopes it will lead to improved credit ratings, reducing the cost of future borrowing.

"It's the right time," said Storchak, who heads the Finance Ministry's international financial relations department. Moody's raised Russia's foreign-credit rating to investment grade in late 2003, followed by Fitch a year later and Standard and Poor's in January this year.

Storchak said Moscow hopes to buy back another US$6 billion to US$10 billion in Paris Club debt.

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