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. Last Updated: 07/27/2016

Failed Bank Has Years to Make Good

Depositors will have to wait up to 15 years before they can reclaim all of the estimated $6 billion to $10 billion frozen when Vneshekonombank, the Soviet foreign trade bank, went bankrupt in 1991.

The newspapers Commersant and Moskovsky Komsomolets gave details of a presidential decree "on measures to regulate the domestic hard currency debt of the former Soviet Union", and sources within Vneshekonombank confirmed the decree had been signed on Dec. 7.

The decision clears the way for cash-strapped depositors to sell their frozen deposits in the form of securities. But the terms, which include interest of 3 percent annually, and continued financial uncertainty, mean such sales will be at a huge discount.

According to the media reports, the decree says that firms, cooperatives and foreign trade organizations will receive 55 percent of their money in 10 years and the remaining 45 percent in a term of 15 years.

Among other classes of depositors, private individuals will be eligible for full repayment from July 1, 1993. Joint ventures will receive their money in three lots, 10 percent in one year, 50 percent in three years and 40 percent in 6 years.

The decree proposes to issue government bonds to all account holders with terms from 1 to 15 years to allow them to liquidate their debts.

According to the reports, the decree requires that the Central Bank and the Ministry of Finance work out the details of the government bonds by Dec. 20, 1992.

But according to Oleg Kuznetsov, second deputy in the Finance Ministry's hard currency section, his department had not yet been shown the decree.

The collapse of Vneshekonombank was a huge blow to Russia's financial prestige. All foreigners and foreign trade organizations were forced to keep their money there.

Among known major creditors are the Russian timber foreign trade organization, which has $150 million frozen, and Ingostrakh, the former Soviet Union's hard currency insurer, with $60 million. Both companies have continued to trade. Among Western firms, Polaroid Corp. has $600, 000 trapped in the bank, and the advertising agency Young & Rubicam/Sovero has several hundred thousand dollars.

While the government has finally acted on a pledge made in January this year to sort out the Vneshekonombank mess, the terms of the bond offer will certainly involve corporate depositors taking a big loss.

Because of the low interest rate and the acute skepticism about the Russian government's capacity to repay, the bonds will almost certainly trade at a major discount to their face value.

The Russian government has been paying out individual depositors in limited amounts since early this year.