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MOSCOW: Russia yesterday completed paying
off its Soviet-era debts to the Paris Club of creditor nations, drawing on
its new-found oil wealth to seal a dramatic recovery from its 1998
financial crash.
Vnesheconombank, the state-owned bank which acts as
Russia's debt agent, said it had made an early repayment of $22.5bn as
well as servicing costs of $1.3bn.
The Finance Ministry hailed the repayments, made to 17
Paris Club creditor nations from August 15 to 21, a period spanning the
eighth anniversary of its $40bn domestic debt default and rouble
devaluation.
"The early repayment to creditor nations was made possible
by growth in the economic and financial might of Russia," the ministry
said in a statement.
Russia was forced to restructure the debts, assumed by
Moscow after the collapse of the Soviet Union in 1991, twice in 1996 and
1999.
The Finance Ministry said the repayment would save over
$12bn in debt costs through to 2020 and reduce Russia's foreign debts as a
share of gross domestic product to just 9%.
"Repaying the entire sum ... will facilitate a
strengthening of Russia's international authority as a state with
significant financial reserves and stable borrowing," the ministry
added.
Analysts said the repayment strengthened an already-strong
case for international ratings agencies to upgrade Russia, with Standard
& Poor's tipped as the most likely to move next.
"It's a very symbolic step for Russia as a country," said
Zsolt Papp, emerging markets economist at ABN Amro in London. "It
strengthens the case for a ratings upgrade."
S&P upgraded its sovereign rating on Russia last year
to BBB with a stable outlook. Fitch rates Russia BBB+ and Moody's Baa2,
both with stable outlooks.
There was no immediate comment from the Paris
Club.
Russian Eurobonds firmed yesterday in an otherwise quiet
external emerging debt market, with Russia's benchmark 30-year bond being
bid higher. Yields on the bond fell 8.3 basis points to 5.861%, the lowest
in five-months.
The payment completes a breakthrough deal signed with the
Paris Club in June and brings Russia's total foreign debt redemptions in
the past year to over $40bn.
Russia, the world's second-largest oil exporter, drew on a
budget stabilisation fund set up in 2004 to make the repayment. It will
knock about a third off the country's foreign debts, which last stood at
$70bn.
The fund, stuffed with windfall petrodollar revenues, has
become a hallmark of Russia's economic revival under President Vladimir
Putin after the chaos and hyperinflation of the 1990s virtually wiped out
the central bank's reserves.
The reserves last stood at $277bn, the third largest in
the world after Japan and China. That figure will fall when the repayment
from the oil fund, counted as part of the reserves, shows up in the
central bank's weekly figures.
The biggest recipient is Germany, which will also receive
the bulk of a $1bn premium Russia agreed to pay in lieu of foregone
interest, with France, Britain and the Netherlands to share the
rest.
Germany held out for a premium after it had securitised
part of Russia's Paris Club debts in 2004 in the form of credit-linked
notes. The "Aries" CLNs, backed by Russian debt payments, are now viewed
by investors as straight German debt.
The repayment will also help insulate Russia's economy
from the impact of booming oil export revenues, which have boosted the
money supply and driven up the price of property, stocks and luxury
goods.
After the sovereign repayment, Russia still has some
unfinished business dating back to the Soviet era. The Finance Ministry
will next month offer to swap $600mn in debts to commercial creditors into
Eurobonds.
The swap, the second since a $1.3bn deal at a 35% discount
in 2002, will further reduce the outstanding stock of foreign trade debts,
estimated at up to $3bn. -
Reuters | 
