-Caveat Lector-
In past CNNS press release it was pointed out that a return
to the old Cold War scenario seemed likely. Since that press
release, Russia has recalled her ambassadors from both the
U.S. and the U.K. Such a recall of ambassadors is historically
quite serious: for example, after Pearl Harbor, Japan recalled
her ambassador to the U.S. Yet the Russian recall of Ambassadors
has been treated as if it's no big deal by U.S. mass media,
who've merely mentioned it in passing. Also ominous is the
re-uniting of Russia with Ukraine and possible re-uniting
with Belarus (sp?) Also, when dying Yeltsin finally does die,
that is likely to lead to further disaffection between U.S.
and Russia. Also, Iraq situation not resolved but worse than
ever after extravagant dumping of $500 million worth of bombs;
Iraq, client state of Russia, now more defiant than ever. If
further war breaks out between U.S. and Iraq, that's bound to
further alienate the Russians. Below is article from NYTimes
business section indicating Russia is defaulting on its debt
to big bankers; powerful big bankers aren't going to like that.
December 30, 1998
Russia Fails to Make $362 Million Bank Payment
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By DAVID E. SANGER
W ASHINGTON -- Russia on Tuesday failed to make a $362 million
payment on Soviet-era debt that it owes to commercial banks around
the world, a move that U.S. officials, the International Monetary
Fund and lenders to Russia fear could signal a growing movement in
Moscow to simply default on the country's obligations.
The lenders, led by Bank of America, stopped short of calling
Tuesday's action a default, even though it appeared to be exactly
that.
In August, in the midst of the devaluation of the ruble and the
firing of the economic reformers who had negotiated a bailout of
the country with the International Monetary Fund, Russia failed to
pay hundreds of millions of dollars it owed to foreign governments.
But Tuesday's action was the first in which it failed to pay
private creditors, on whom the country's chances of economic
recovery hinge.
Russia needed to reach agreement with 95 percent of its creditors
to restructure its debt, essentially allowing it to pay the money
back over a far longer period of time. But only 72 percent of those
creditors gave approval to a plan under which the commercial banks
would accept government-issued bonds as an alternative to cash.
Russia insists that it only needed to win the approval of
two-thirds of the creditors, and therefore it is not technically in
default.
"Officially, the issue of default does not exist at this point,"
Vladimir Yatsenko, an aide to the chairman of Vnesheconombank,
Russia's paying agent, was quoted as saying in a Bloomberg News
dispatch from Moscow.
Bank of America said through a spokesman that it was seeking
clarification of Yatsenko's reported statement but that the 95
percent approval requirement from creditors remained unchanged.
The payment itself is not a major problem for the banks, and the
markets had long ago anticipated that Russia would find itself
unable to pay, or simply would be unwilling to do so. But the
signal that Russia's action sent seems bound to reverberate in
capitals around the world, especially in Washington.
International economic officials said they suspected that Russia
had decided to simply default on selected foreign debt. "The
question," said one official who has been engaged in discussions
with the Russians, "is whether this is an act of desperation or a
negotiating tactic."
One possibility is that the government of President Boris Yeltsin
has determined that there is little chance that private banks will
lend it money for years to come, even if Russia begins to collect
taxes, impose fiscal austerity, and come to terms with the IMF over
a new loan package. With no relationship left to destroy with the
commercial banks, this theory goes, the Russians have simply made a
determination to halt repayments.
But others believe that the default may simply amount to a
negotiating strategy, to force the banks to restructure the debt on
Moscow's terms. "This may be their equivalent of an offer we can't
refuse," one banker dealing with Russia said last week. "They want
us to think that the choice is between getting something -- who
knows how much -- someday, or getting nothing at all."
The Russians have been engaged in a parallel negotiation with other
governments to which it owes money, a group known as the Paris
Club. But that debt cannot be restructured until Russia and the IMF
work out a new agreement, to replace the failed accord of last
July. At that time, the IMF agreed to provide Russia with $17
billion in additional aid, in return for adherence to a strict
agreement with the fund on spending, tax collection and social
programs.
That agreement was essentially shattered in August, after Russia
received a little more than $4 billion in aid. The IMF has cut off
further payments, and the assumption in Washington is that any
future agreement with the fund will be smaller and more
"backloaded," meaning that Russia would have to meet many of the
conditions of the new loan before much cash is forwarded to Moscow.
Tuesday's failure to meet the payment schedule came as the Clinton
administration announced that the secretary of state, Madeleine
Albright, would visit Russia from Jan. 25 through Jan. 27, to
launch long-delayed strategic arms reduction talks and to try to
patch over differences on how to deal with Iraq. But it is unclear
how the United States and Russia can begin arms talks over Start
III when the Duma, Russia's Parliament, has refused to ratify Start
II.
The arms talks and Russia's economic troubles are closely linked.
Prime Minister Yevgeny Primakov has pledged to win approval on
Start II, which was signed in 1993, in part because he wants to
save the money required to maintain and upgrade a large nuclear
fleet. But it is unclear whether Albright will deal at any length
with Russia's crushing financial problems.
[LINK]
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