Kudrin to Face Questions On Debt at G7 Summit

Russia's plan to outline a vision of a new global economic order to the Group of Seven finance ministers this week fits very uneasily with the collapse of its economy and worries about how much its companies owe European banks.

Arriving in Rome on Friday, Finance Minister Alexei Kudrin is likely to face tough questions from the G7 economies about a $500 billion corporate debt burden that could potentially pull down European banks and even the euro.

"The message from the G7 finance ministers will be: 'Moscow, do we have a problem there?'" said Chris Weafer, from UralSib. "They will seek clarity on whether there is a threat to their banking systems coming from Russia."

Russia is the only emerging nation to have a seat in the so-called G8, created in the 1990s to give the country a role in international decision making, but it still feels sidelined on some of the G8's economic discussions.

During the boom years, Moscow accumulated the world's third-largest foreign currency reserves and announced plans to make the ruble a regional reserve currency. But there is a growing gap between aspiration and reality.

Russia has already spent more than one-third of its reserves defending the ruble, the economy is projected to contract in 2009 and its budget is expected to go into deficit as agencies cut Russian ratings on corporate debt concerns.

The ruble's slide and banking sector woes have evoked painful memories of the financial meltdown in 1998 when Russia defaulted on its debt, but unlike 1998 it is now the corporate sector and not the state that is in danger of default.

The reserve drain has added to downward pressure on the euro since the Central Bank has been selling dollars at home but euros and pounds internationally to rebalance the structure of reserves, where dollars make up about 45 percent.

Despite the gloom, Russia is keen to project an image of self-confidence, with Prime Minister Vladimir Putin lecturing the audience on the global economy in Davos and President Dmitry Medvedev threatening to boycott the G20 summit in London.

"It does not make sense to go there just for a ride's sake. We need to sign documents, create a foundation for the new economic architecture," Medvedev said.

Officials declined to outline Russia's agenda for the G20 summit or the G8 finance ministers' meeting. Russia co-chairs none of the G20's four working groups and has no plans to hold a pre-G8 briefing.

Kudrin, who wants to set up a global regulator whose decisions would be mandatory for all countries, told a government meeting this week that Russia would make an effort to enter the Financial Stability Forum, but did not elaborate.

In Rome, Kudrin will also have a separate meeting with U.S. Treasury Secretary Timothy Geithner, which will be the second top-level contact between the Russian government and the new U.S. administration.