Rescheduled Debt Will Save Russia $7 Billion

The world's leading industrial nations agreed over the weekend to reschedule much of Russia's debt for 1994, giving the country's troubled economy some badly needed breathing space.The agreement, reached after two days of negotiations in Paris, reflected the West's desire to support President Boris Yeltsin and his economic reforms. It also reflected a degree of realism, since Russian officials have said they are unable to repay all of the Soviet debt now falling due.Russia owes about $80 billion to foreign governments and banks, most of it inherited from the Soviet Union, which collapsed in 1991. According to initial reports, the agreement reached Saturday will save Russia about $7 billion this year.Yeltsin and his government have promised to make good on the Soviet debt eventually, but they have asked for reschedulings to ease the current painful transition from socialism to a free market.Some Western economists have criticized Western governments and banks -- who come together in groups known respectively as the Paris Club and the London Club -- for not being more forthcoming in rescheduling Russia's debts at a time when Yeltsin is under strong political pressure at home. Despite all the talk about Western aid, the critics have said, Russia has had to pay more in interest on old debts than it has received in new aid.Western officials and bankers have maintained that an orderly rescheduling of debt, rather than a write-off or default, is important in order to maintain Russia's creditworthiness and allow it to continue borrowing on the international market.Russia's acting finance minister, Sergei Dubinin, who led the negotiations in Paris, welcomed the agreement but said Russia would soon seek a longer-term, more comprehensive debt rescheduling. Saturday's agreement, Dubinin said, "creates a very favorable external economic environment that will allow us to work within the country to get out of the crisis." But he added that he expects "fairly difficult negotiations" this fall on a longer-term rescheduling.The rescheduling reflects a vote of Western confidence not only in Yeltsin but in Prime Minister Viktor Chernomyrdin and his economic team. To the surprise of some critics here and in the West, Chernomyrdin has maintained a relatively tight budget policy, which has helped reduce Russia's monthly inflation rate from more than 20 percent last fall to less than 10 percent this spring.Many in the West feared that the triumph of communists and nationalists in last December's parliamentary elections, followed by the resignations from the government of leading reformers Yegor Gaidar and Boris Fyodorov, would spell the end of Russia's tight-money policy, its radical privatization program and perhaps its reforms altogether. But Chernomyrdin, Dubinin and their team have kept the reform program more or less on course, according to most observers.The International Monetary Fund responded earlier this year by agreeing to lend Russia another $1.5 billion, with a $4 billion credit possible later this year.The agreement reached with the Paris Club on Saturday is roughly similar to one negotiated last April, rescheduling payments coming due in 1992 and 1993.According to officials in Paris, Russia owes the Paris Club governments about $45 billion and London Club banks about $26 billion, with other countries, such as South Korea, and banks claiming the rest. So far, some $22 billion of the $45 billion owed to the wealthiest nations has been rescheduled, the officials told Reuters.The new schedule of repayments is intended to give Russia as much leeway as possible during the next two or three years, assuming that the economy will gradually gather strength. Russia is still expected to have to pay back more than $4 billion this year in principal and interest, officials said.