Putin pays off debt as economic clout rises


Richard Moore

Original source URL:

This news article was printed from ITPBusiness.net

Sunday, 27 August 2006
Putin pays off debt as economic clout rises
by Gabriel Rozenberg (•••@••.•••)

Russia has finally paid off its Soviet-era debts to the Paris Club of wealthy 
nations in a dramatic display of the country¹s new-found economic clout.

The repayment of US$22.5bn that Russia¹s Vnesheconombank made last Monday was 
the largest-ever repayment to the Paris Club of 17 creditor countries.

Analysts said that ratings agencies would upgrade Russia¹s sovereign rating 
after the clearest sign yet of President Putin¹s determination to use the 
soaring value of Russian oil to clean up his country¹s reputation on the 
financial markets.

The move knocked about a third off the country¹s foreign debts, which previously
stood at US$70bn.

Russia had been due to pay off the debts by 2020, but the sharp rise in the 
price of oil has engineered a dramatic improvement in the country¹s fortunes. 
That enabled it to bring the repayment forward, at an estimated saving of 

Under the terms of a deal agreed in June, Russia also agreed to pay a premium of
US$1bn to compensate the creditors for lost interest.

In its budget provisions, Germany, the biggest creditor, had allowed for the 
debt to be unpaid until 2015.

Mr Putin said: ³We used to live with our hand held out for many years ... but 
now the Russian economy cannot only repay debts but do so ahead of time.²

The Finance Ministry said that the repayment would reduce Russia¹s foreign debts
as a share of GDP to just 9%. ³The early repayment to creditor nations was made 
possible by growth in the economic and financial might of Russia,² it said.

³Repaying the entire sum . . . will facilitate a strengthening of Russia¹s 
international authority as a state with significant financial reserves and 
stable borrowing.²

Christopher Green, senior economist at the Moscow Narodny Bank in London, said 
that the move had political implications as well as making economic sense. ³It 
reflects the emergence of Russia as an economy on to the global stage,² he said.

Russia, the world¹s second- largest oil exporter, has enjoyed a marked 
turnaround in its fortunes since its US$40bn domestic debt default and rouble 
devaluation in 1998.

At that time the price of oil was below dollars 13 a barrel, compared with 
nearly dollars 72 a barrel last Monday.

Two years ago, Russia set up a budget stabilisation fund to insulate it against 
fluctuations in the price of oil.

Over the past year the country has redeemed more than dollars 40billion of 

In another sign of strength, the rouble was made fully convertible at the start 
of July, a full six months ahead of schedule, - in a move which caught many 
watching experts by surprise.

© 2006. ITP Online Ltd.

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