As state secrets go, Russia’s program of export finance and loans to other nations might be one of the worst kept.
While discussions about aiding cash-strapped allies frequently spill into the open, Russian Ministry of Finance debt chief Konstantin Vyshkovsky said information about individual loans is not public, and a budget addendum on state financial and export credit is classified as “secret.”
However, speaking in an interview at his office a short walk from the Kremlin, Vyshkovsky said Russia has committed about US$70 billion in total to such loans, a figure that has not been disclosed before.
“Direct loans from the budget are a big rarity in the world,” Vyshkovsky said, calling the practice something “particular to Russia.”
On average over the past decade, about US$3 billion has been allocated annually in the budget for that purpose, he said, which makes it comparable to the £3 billion (US$3.9 billion) provided by the UK’s state-run credit export agency for the 2016-2017 fiscal year.
Russia does not make much effort to keep the spending under wraps, using it to grease political ties and pave the way for projects from China to Hungary for its nuclear energy agency, Rosatom State Atomic Energy.
Some loans also go bad, keeping the subject in the public eye. Most recently, crisis-stricken Venezuela failed to make payments on its debt, opening a 53.9 billion ruble (US$898.3 million) hole in Russia’s expected government revenue this year.
Stuck with Soviet-era debt that it thought was too hopeless to recoup, Russia has even opted in recent years to write off money owed by former communist allies, such as Cuba and North Korea.
In contrast, Russia took more than 60 years to repay the loans received by the Soviet Union from the US during World War II.
Despite the risks of lending to other states, the policy presents little “short-term” threat to the budget, S&P Global Ratings in Moscow analyst Karen Vartapetov said.
Although Vyshkovsky would not discuss the situation around Venezuela, he said authorities want to impose more order on the process of lending to other countries.
The ministry is working on a document to formalize the rules and conditions for such loans and establish the criteria for countries that can get credit on preferential terms, he said.
“With each year, the volume of state export credits and the number of countries that get them are growing,” Vyshkovsky said.
The ministry assesses a potential borrower’s “solvency before signing any agreement on providing a state credit,” he added.
“Financial credit,” extended for nations to meet their general needs or to stabilize the budget, makes up a small share of Russian state loans, Vyshkovsky said.
It requires a decision at the highest political level and goes to countries enjoying especially close ties with Russia, he said.
The vast majority of money made available by the government covers export finance, with the borrower getting Russian products and services, and a local firm receiving the funds. Nuclear projects account for 90 percent of the US$70 billion total in state loans, followed by the defense industry and civil aviation, Vyshkovsky said.
Russia kept up the practice of state export loans during the leanest years after the Soviet collapse more than a quarter century ago.
In 1991, China got funding for its Tianwan Nuclear Power Station, which it fully repaid ahead of schedule and has since made deals with Rosatom on a commercial basis, Vyshkovsky said.
Unlike most nations that offer guarantees in the form of export insurance for loans extended by banks, what makes Russia’s approach unique is it provides the funds directly from the budget.
As the example of Hungary’s “deal of the century” shows, money talks.
A member of the EU, Hungary scrapped bids for the expansion of its nuclear plant in 2014 and handed the contract to Rosatom after Russia offered to prefinance much of the project in the form of a 30-year, 10 billion euro (US$11.6 billion) loan that covered 80 percent of the total cost.
At the time, the Hungarian government, still paying higher borrowing costs because of its junk sovereign credit status, said it had secured a loan at “below-market” rates.
While Rosatom has had less luck in countries such as Bulgaria, it is also involved in building a nuclear plant in Turkey valued at about US$20 billion.
When it comes to such costly projects, few rivals can match the financial muscle of Russia, which is additionally drawn to offer government backing because politics come into play.
“These are major, long-term loans. The presence of not just economic, but also political considerations naturally translates into the state’s increased role in giving such projects financial support,” Center for Macroeconomic Analysis and Short-Term Forecasting deputy director Vladimir Salnikov said.
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