ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Russia vs Paris Club:Default on Debt Repayment

Russia, in the beginning of 2001, finds itself in danger of defaulting on its debt repayments to the Paris Club. One opinion believes that the Russian economy is in dire straits and in no position to repay. On the contrary, the west - including Russia's main creditor, Germany and other influential economists and rating agencies believe that the issue has been mismanaged by the Russian authorities. Not only is there lack of coordination among different branches of the Russian government, it has also been unable to contain capital flight and money laundering of funds that are desperately needed for ecnomic development.

The Russian government is required to make a debt repayment of $ 1.6 billion in the first quarter of 2001 to the Paris Club creditor countries of Europe. This is only part of the scheduled payment of the year 2001 amounting to $ 3.8 billion out of the total debt amount of $ 48.6 billion. This scheduled repayment has become a major issue which has raised debate and controversy in Russia and the west, as well, among various sections of the society – politicians, bankers and intellectuals. In Russia the debate started with the Interfax news report of January 4, 2001 quoting Gennadi Yezhov, a spokesman of the Russian ministry of finance that Moscow would not make the first quarter payment to the Paris Club. This statement got further credibility from an Associated Press report stating that the prime minister of Russia Mikhail Kasyanov acknowledged that the state budget did not call for meeting debt repayment schedule of the Paris Club countries. Thus while it was evident from the above statements that the Russian government was intending to skip the payment of debt to the Paris Club, there were divergent views, with various concerned sections in Russia taking extreme positions on this issue. For example, Vladimir Nikitin who heads the Debt Servicing Commission of the Duma (Russian parliament) stated on January 10 that Russia had a legal and moral right not to make payments on the principal debt contending that earlier accords violated Russia’s interests. Echoing a similar view, the chief of the Communist Party of Russia, Gennady Zyuganov asserted that ‘countries such as ours never wish to pay debt’.

In the present prevailing more open society of Russia, these views, however, are not shared by other sections. Alexander Shokin, the chairman of the Duma Banking committee has opined ‘it is unacceptable not to meet its credit obligations to the Paris Club’. Similarly, Alexander Livshits, the former finance minister under Boris Yeltsin has asserted that the Russian government must pay the Paris Club debts as soon as possible. The Moscow daily paper Izvestiya correspondents, Elena Korop and Vladimir Tsypin in their report on January 9 stated that failure to pay Russian debt to the Paris Club will have negative consequences both at home and abroad. They have contended that non-payment on time could lead to seizure of Soviet property and also damage to the reputation of Russian business abroad thus affecting Russia’s ‘historic chance to become part of the world economy’.

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