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. Last Updated: 07/27/2016

Theft by Another Name

The agreement on Russian debts amounting to 2 billion francs that was signed between the Russian and French governments is a very bad agreement.


It is a bad agreement for the French debt holders, since the "reimbursement" that one would like to impose corresponds to 0.2 percent of the actual value of the amount that was loaned, which comes to close to 1 trillion francs if the interest that has accrued is added, and 1 percent of the amount that is being claimed.


It is also a very bad agreement for Russia, since it is difficult to imagine how a country could regain its financial credibility by settling its debts at a discount. It is hard to imagine how Russia could make another appeal for French savings when it so widely plundered them in the past. The reactions in the French press are very revealing. One headline even read "Russia Is Asking for Humiliating Alms From Debt Holders." This affair will leave its mark, and one would think that mistrust in France will not disappear so quickly. Russia could even fear that the manna that has helped it get out of various difficulties might dry up.


Finally, it is a very bad agreement for France, which thought that the offer of reimbursement would end the dispute that has poisoned relations between the two countries. How wrong the country was! Could it really be expected that debt holders would be pleased with this pittance? Moreover, it should be recalled that France ranks only ninth among suppliers to Russia, with less than 3 percent of the market, whereas Germany ranks second with more than 15 percent. France is surpassed by Finland, Italy and Holland. Will this discount encourage investors to put confidence in a country that only honors its obligations by 1 percent?


But it is necessary to go back to the origin of this drama, which still hits many French families hard. Between 1867 and 1914, French investors loaned Russia more than 15 billion gold francs for the construction of 70,000 kilometers of railroads, great urban projects in St. Petersburg, Moscow and Odessa, financing of factories, oil wells, mines and even "aid to populations suffering from the bad harvest." In total, there were some 50 loans, lasting for 80 years on average, that were subscribed to by 1,600,000 families. Every one of them dreams of bequeathing the fruit of their labor to future generations.


In 1918, the new powers in Russia unilaterally annulled the external debt and nationalized all enterprises. One poorly gages today the human drama that is represented by this measure, which is contrary to international law. French savings were hit hard: Tens of thousands of families were ruined. There were numerous suicides by those who had put all their savings in Russian loans and were persuaded that the signature of the Russian tsarist state was a fail-safe guarantee.


Despite the permanent violation of international law, Russia has acceded to some of the highest international institutions. It is a member of the United Nations, the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development. Russia has entered the International Organization of Security Commissions and signed an accord of partnership with the European Union, which aims to create a free trade zone by 2000. Russia would like to join the Bank of International Settlements, whose accounting unit is the gold franc. It would also like to adhere to the Paris Club, which groups together creditor countries with debtor countries. Russia thus hopes to recuperate a part of the $130 billion of debt that the former Soviet Union had contracted to Third World countries and block all grants of international credit to its debtors so long as they are not engaged in a reimbursement plan.


Russia hopes to be the eighth member of the G7, which now gathers together the seven richest and most industrialized countries of the planet. And during this time, Russia has offered 2 billion francs to be paid out over four years to settle a debt that it has succeed in bringing down to 160 billion francs.


Russia remains, until it is proven otherwise, a debtor in default. Brokers, managers of investment funds, banks and financial intermediaries should bear this in mind and not run ill considered risks to the investor. Furthermore, organizations such as Moody's or Standard and Poors, which have given satisfactory ratings for the issuing of Russian bonds on the European market, should take account of this major risk. Once more, it is essential that states respect international law and honor their commitments.


If Russia wishes to enjoy international respectability, it should revise the memorandum that it has just signed on settling its pre-1917 debts. It should consider what has been said in the French stock market milieu following the offer of indemnization at a discount: "When it comes to Russians who intend to issue new loans and who, it is said, would restore its virginity by this gesture, it is not at all certain whether they will profit much from this. Because now we know at which rate they reimburse the capital. As for the interest ... "


I shall end by underscoring the fact that aside from the financial aspect of this drama, the struggle that the Porteurs Fran?ais d'Emprunts Russes, French Holders of Russian Loans, are leading is also a fight for honor. They remain mobilized and determined.


Russia should be made to understand this.





Pierre de Pontbriand is president of the Association Fran?aise des Porteurs d'Empreunts Russes. He contributed this comment to The Moscow Times.