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Russia as a Creditor
Sam Vaknin, Ph.D. - 5/30/2005
Global Politician, NY
May 30 2005
Russia is notorious for its casual attitude to the re-payment of
its debts. It has defaulted and re-scheduled its obligations more
times in the last decade than it has in the preceding century. Yet,
Russia is also one of the world's largest creditor nations. It is owed
more than $25 billion by Cuba alone and many dozens of additional
billions by other failed states. Indeed, the dismal quality of its
forlorn portfolio wouldn't shame a Japanese bank. In the 18 months
to May 2001, it has received only $40 million in repayments.
It is still hoping to triple this trifle amount by joining the
Paris Club - as a creditor nation. The 27 countries with Paris
Club agreements owe roughly half of what Russia claims. Some of
them - Algeria in cash, Vietnam in kind - have been paying back
intermittently. Others have abstained.
Russia has spent the last five years negotiating generous package
deals - rescheduling, write-offs, grace periods measured in years -
with its most obtuse debtors. Even the likes of Yemen, Mozambique,
and Madagascar - started coughing up - though not Syria which owes
$12 billion for weapons purchases two decades ago. But the result
of these Herculean efforts is meager. Russia expects to get back
an extra $100 million a year. By comparison, in 1999 alone Russia
received $800 million from India.
The sticking point is a communist-era fiction. When the USSR expired
it was owed well over $100 billion in terms of a fictitious accounting
currency, the "transferable ruble". At an arbitrary rate of 0.6 to the
US dollar, protest many debtors, the debt is usuriously inflated. This
is disingenuous. The debtors received inanely subsidized Russian goods
and commodities for the transferable rubles they so joyously borrowed.
Russia could easily collect on some of its debts simply by turning
off the natural gas tap or by emitting ominous sounds of discontent
backed by the appropriate military exercises. That it chooses not to
do so - is telling. Russia has discovered that it could profitably
leverage its portfolio of defunct financial assets to geopolitical
and commercial gain.
On March 25, 2002 Russia's prime minister and erstwhile lead debt
negotiator, Kasyanov, has "agreed" with his Mongolian counterpart,
Enkhbayar, to convert Mongolia's monstrous $11.5 billion debt to
Russia - into stakes in privatized Mongolian enterprises.
Mongolia's GDP is minuscule (c. $1 billion). Should the Russian
behemoth, Norilsk Nickel, purchase 49% of Erdenet, Mongolia's copper
producer, it will have bagged 20% of Mongolia's GDP in a single debt
conversion. A similar scheme has been concluded between Armenia
and Russia. Five enterprises will change hands and thus eliminate
Armenia's $94 million outstanding debt to Russia.
Identical deals have been struck with other countries such as Algeria
which owes Russia c. $4 billion. The Algerians gave Gazprom access
to Algeria's natural gas exports.
Russia's mountainous credit often influences its foreign policies to
its detriment. Prior to the Iraq (Second Gulf) war, It has noisily
resisted every American move to fortify sanctions against Iraq and make
them "smarter". Russia is owed $8 billion by that shredded country and
tried to recoup at least a part of it by trading with the outcast or
by gaining lucrative oil-related contracts. The sanctions regime was
in its way - hence its apparent obstructionism. Its recent weapons
deals with Syria are meant to compensate for its unpaid past debts to
Russia - at the cost of destabilizing the Middle East and provoking
American ire.
Russia uses the profusion of loans gone bad on its tattered books
to gain entry to international financial fora and institutions. Its
accession to the Paris Club of official bilateral creditors is
conditioned on its support for the HIPC (Highly Indebted Poor
Countries) initiative.
This is no trifling matter. Sub-Saharan debt to Russia amounted to c.
$14 billion and North African debt to yet another $11 billion -
in 1994. These awesome figures will have swelled by yet another 25%
by 2001. The UNCTAD thinks that Russia intentionally under-reports
these outstanding obligations and that Sub-Saharan Africa actually
owed Russia $17 billion in 1994.
Russia would have to forgo at least 90% of the debt owed it by
the likes of Angola, Ethiopia, Guinea, Mali, Mozambique, Somalia,
Tanzania, and Zambia. Russian debts amount to between one third and
two thirds of these countries' foreign debt. Moreover, its hopes to
offset money owed it by countries within the framework of the Paris
Club against its own debts to the Club were dashed in 2001. Hence
its incentive to distort the data.
Other African countries have manipulated their debt to Russia to their
financial gain. Nigeria is known to have re-purchased, at heavily
discounted prices, large chunks of its $2.2 billion debt to Russia in
the secondary market through British and American intermediaries. It
claims to have received a penalty waiver "from some of its creditors".
Russia has settled the $1.7 billion owed it by Vietnam in 2001. The
original debt - of $11 billion - was reduced by 85 percent and spread
over 23 years. Details are scarce, but observers believe that Russia
has extracted trade and extraction concessions as well as equity in
Vietnamese enterprises.
But Russia is less lenient with its former satellites. Five years ago,
Ukraine had to supply Russia with sophisticated fighter planes and
hundreds of cruise missiles incorporating proprietary technology.
This was in partial payment for its overdue $1.4 billion natural
gas bill. Admittedly, Ukraine is also rumored to have "diverted"
gas from the Russian pipeline which runs through it.
The Russians threatened to bypass Ukraine by constructing a new,
Russian-owned, pipeline to the EU through Poland and Slovakia.
Gazprom has been trying to coerce Ukraine for years now to turn over
control of the major transit pipelines and giant underground storage
tanks to Russian safe hands. Various joint ownership schemes were
floated - the latest one, in 1999, was for a pipeline to Bulgaria
and Turkey to be built at Ukrainian expense but co-owned by Gazprom.
After an initial period of acquiescence, Ukraine recoiled, citing
concerns that the Russian stratagem may compromise its putative
sovereignty. Already UES, Russia's heavily politicized electricity
utility, has begun pursuing stakes in debtor Ukrainian power producers.
Surprisingly, Russia is much less aggressive in the "Near Abroad". It
has rescheduled Kirghizstan's entire debt (c. $60 million) for a period
of 15 years (including two years grace) with the sole - and dubious -
collateral of the former's promissory notes.
Russia has no clear, overall, debt policy. It improvises - badly -
as it goes along. Its predilections and readiness to compromise change
with its geopolitical fortunes, interests, and emphases. As a result
it is perceived by some as a bully - by others as a patsy. It would
do well to get its act together.
Sam Vaknin, Ph.D. is the author of Malignant Self Love - Narcissism
Revisited and After the Rain - How the West Lost the East. He served
as a columnist for Central Europe Review, PopMatters, Bellaonline,
and eBookWeb, a United Press International (UPI) Senior Business
Correspondent, and the editor of mental health and Central East Europe
categories in The Open Directory and Suite101.
Until recently, he served as the Economic Advisor to the Government
of Macedonia. Sam Vaknin's Web site is at http://samvak.tripod.com
Sam Vaknin, Ph.D. - 5/30/2005
Global Politician, NY
May 30 2005
Russia is notorious for its casual attitude to the re-payment of
its debts. It has defaulted and re-scheduled its obligations more
times in the last decade than it has in the preceding century. Yet,
Russia is also one of the world's largest creditor nations. It is owed
more than $25 billion by Cuba alone and many dozens of additional
billions by other failed states. Indeed, the dismal quality of its
forlorn portfolio wouldn't shame a Japanese bank. In the 18 months
to May 2001, it has received only $40 million in repayments.
It is still hoping to triple this trifle amount by joining the
Paris Club - as a creditor nation. The 27 countries with Paris
Club agreements owe roughly half of what Russia claims. Some of
them - Algeria in cash, Vietnam in kind - have been paying back
intermittently. Others have abstained.
Russia has spent the last five years negotiating generous package
deals - rescheduling, write-offs, grace periods measured in years -
with its most obtuse debtors. Even the likes of Yemen, Mozambique,
and Madagascar - started coughing up - though not Syria which owes
$12 billion for weapons purchases two decades ago. But the result
of these Herculean efforts is meager. Russia expects to get back
an extra $100 million a year. By comparison, in 1999 alone Russia
received $800 million from India.
The sticking point is a communist-era fiction. When the USSR expired
it was owed well over $100 billion in terms of a fictitious accounting
currency, the "transferable ruble". At an arbitrary rate of 0.6 to the
US dollar, protest many debtors, the debt is usuriously inflated. This
is disingenuous. The debtors received inanely subsidized Russian goods
and commodities for the transferable rubles they so joyously borrowed.
Russia could easily collect on some of its debts simply by turning
off the natural gas tap or by emitting ominous sounds of discontent
backed by the appropriate military exercises. That it chooses not to
do so - is telling. Russia has discovered that it could profitably
leverage its portfolio of defunct financial assets to geopolitical
and commercial gain.
On March 25, 2002 Russia's prime minister and erstwhile lead debt
negotiator, Kasyanov, has "agreed" with his Mongolian counterpart,
Enkhbayar, to convert Mongolia's monstrous $11.5 billion debt to
Russia - into stakes in privatized Mongolian enterprises.
Mongolia's GDP is minuscule (c. $1 billion). Should the Russian
behemoth, Norilsk Nickel, purchase 49% of Erdenet, Mongolia's copper
producer, it will have bagged 20% of Mongolia's GDP in a single debt
conversion. A similar scheme has been concluded between Armenia
and Russia. Five enterprises will change hands and thus eliminate
Armenia's $94 million outstanding debt to Russia.
Identical deals have been struck with other countries such as Algeria
which owes Russia c. $4 billion. The Algerians gave Gazprom access
to Algeria's natural gas exports.
Russia's mountainous credit often influences its foreign policies to
its detriment. Prior to the Iraq (Second Gulf) war, It has noisily
resisted every American move to fortify sanctions against Iraq and make
them "smarter". Russia is owed $8 billion by that shredded country and
tried to recoup at least a part of it by trading with the outcast or
by gaining lucrative oil-related contracts. The sanctions regime was
in its way - hence its apparent obstructionism. Its recent weapons
deals with Syria are meant to compensate for its unpaid past debts to
Russia - at the cost of destabilizing the Middle East and provoking
American ire.
Russia uses the profusion of loans gone bad on its tattered books
to gain entry to international financial fora and institutions. Its
accession to the Paris Club of official bilateral creditors is
conditioned on its support for the HIPC (Highly Indebted Poor
Countries) initiative.
This is no trifling matter. Sub-Saharan debt to Russia amounted to c.
$14 billion and North African debt to yet another $11 billion -
in 1994. These awesome figures will have swelled by yet another 25%
by 2001. The UNCTAD thinks that Russia intentionally under-reports
these outstanding obligations and that Sub-Saharan Africa actually
owed Russia $17 billion in 1994.
Russia would have to forgo at least 90% of the debt owed it by
the likes of Angola, Ethiopia, Guinea, Mali, Mozambique, Somalia,
Tanzania, and Zambia. Russian debts amount to between one third and
two thirds of these countries' foreign debt. Moreover, its hopes to
offset money owed it by countries within the framework of the Paris
Club against its own debts to the Club were dashed in 2001. Hence
its incentive to distort the data.
Other African countries have manipulated their debt to Russia to their
financial gain. Nigeria is known to have re-purchased, at heavily
discounted prices, large chunks of its $2.2 billion debt to Russia in
the secondary market through British and American intermediaries. It
claims to have received a penalty waiver "from some of its creditors".
Russia has settled the $1.7 billion owed it by Vietnam in 2001. The
original debt - of $11 billion - was reduced by 85 percent and spread
over 23 years. Details are scarce, but observers believe that Russia
has extracted trade and extraction concessions as well as equity in
Vietnamese enterprises.
But Russia is less lenient with its former satellites. Five years ago,
Ukraine had to supply Russia with sophisticated fighter planes and
hundreds of cruise missiles incorporating proprietary technology.
This was in partial payment for its overdue $1.4 billion natural
gas bill. Admittedly, Ukraine is also rumored to have "diverted"
gas from the Russian pipeline which runs through it.
The Russians threatened to bypass Ukraine by constructing a new,
Russian-owned, pipeline to the EU through Poland and Slovakia.
Gazprom has been trying to coerce Ukraine for years now to turn over
control of the major transit pipelines and giant underground storage
tanks to Russian safe hands. Various joint ownership schemes were
floated - the latest one, in 1999, was for a pipeline to Bulgaria
and Turkey to be built at Ukrainian expense but co-owned by Gazprom.
After an initial period of acquiescence, Ukraine recoiled, citing
concerns that the Russian stratagem may compromise its putative
sovereignty. Already UES, Russia's heavily politicized electricity
utility, has begun pursuing stakes in debtor Ukrainian power producers.
Surprisingly, Russia is much less aggressive in the "Near Abroad". It
has rescheduled Kirghizstan's entire debt (c. $60 million) for a period
of 15 years (including two years grace) with the sole - and dubious -
collateral of the former's promissory notes.
Russia has no clear, overall, debt policy. It improvises - badly -
as it goes along. Its predilections and readiness to compromise change
with its geopolitical fortunes, interests, and emphases. As a result
it is perceived by some as a bully - by others as a patsy. It would
do well to get its act together.
Sam Vaknin, Ph.D. is the author of Malignant Self Love - Narcissism
Revisited and After the Rain - How the West Lost the East. He served
as a columnist for Central Europe Review, PopMatters, Bellaonline,
and eBookWeb, a United Press International (UPI) Senior Business
Correspondent, and the editor of mental health and Central East Europe
categories in The Open Directory and Suite101.
Until recently, he served as the Economic Advisor to the Government
of Macedonia. Sam Vaknin's Web site is at http://samvak.tripod.com