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. Last Updated: 07/27/2016

Davydov Appointment 'Unnerves' Analysts

LONDON -- Russia's appointment of a new debt negotiator, best known in the West for the unwelcome suggestion that the country could write off some of its huge debt, has been greeted with scant enthusiasm by foreign analysts and traders.


But on balance, sweeping changes to the Russian cabinet over the weekend would slow rather than disrupt debt negotiations, they said.


"It's one good and one bad," said one trader about the weekend reshuffle, the most sweeping by President Boris Yeltsin since key radicals left in January.


The "good" was the appointment of reformer Anatoly Chubais as first deputy prime minister, responsible for economic policy.


Less heartening was putting Foreign Trade Minister Oleg Davydov in charge of talks with creditor governments and banks. Debt negotiations formerly were the responsibility of Alexander Shokhin, who resigned last week as economics minister.


"I've met Davydov and it does unnerve me," one analyst said. "At the moment the good news is that he reports to Chubais."


But he worried that Chubais, widely liked by the market, had so many roles that he was spread rather thin. Aside from his role as first deputy prime minister, Chubais now also heads a new federal commission on securities and will continue to oversee privatization, according to Itar-Tass.


The price of Russian dollar-denominated loans, traded internationally and always sensitive to any major changes in Russia, has so far managed to hold up following Davydov's appointment.


Davydov rose to prominence in the West last August when he questioned why, when large chunks of Bulgarian and Polish debt were being forgiven, the same was not happening to Russia.


Russia is in the throes of negotiating terms on its $25 billion of commercial debt. Its total foreign debt is around $80 billion, which Moscow took on when the Soviet Union collapsed in 1991.


But analysts have said they expect no rescheduling until agreement is reached with the International Monetary Fund on a standby loan, possibly of around $4 billion.


All that appears so far to have been agreed with commercial bank creditors has been the question of sovereignty and the obligor, the entity legally responsible for the debt.


If Davydov does seriously push for debt forgiveness, then banks would be bound to retreat from accepting Vneshekonombank as the obligor, one analyst said.