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. Last Updated: 07/27/2016

EDITORIAL: T-Bill Talk Just Prolongs The Agony




In the future, before Finance Minister Mikhail Zadornov announces that he has reached an agreement with Russia's foreign creditors, he should check with the foreign creditors to see if they agree with him.


The long-running and depressing saga of Russia's default on its domestic treasury bills took a comical turn this week as Zadornov claimed he had reached a deal with foreign creditors on restructuring the debt, only to have the two lead foreign creditors - Deutsche Bank and CS First Boston - issue statements saying there was no deal.


Russia defaulted on the treasury bills on Aug. 17, promising to announce a restructured payment schedule within two days. The process of renegotiating the debts has dragged on now for four months.


The government of Yevgeny Primakov came to power promising to right the beastly wrongs of the outgoing government. It repudiated a debt restructuring arrangement announced on Aug. 25 by Boris Fyodorov who was briefly deputy prime minister. This deal was criticized as confiscatory and unfair by foreign creditors.


Instead, Primakov promised to cut a new deal that would please everyone and restore the financial community's faith in Russia. Primakov and the investors would have done better to keep their mouths shut.


The deal that Fyodorov offered investors was little different from what Zadornov has now placed on the table. And if that deal had been accepted, it would have closed the issue. The past four months of inconclusive talks have just prolonged the agony.


It is hard to understand what is motivating Zadornov to claim that he has a deal when he patently does not. Perhaps a deal will help him sign off on the 1999 budget.


But there are big differences to be resolved. Foreigners have been promised 70 percent of their money in long-term bonds, 20 percent in zero-coupon bonds exchangeablefor tax payments or shares in unspecified Russian companies and 10 percent in cash.


But foreigners have not been told the rules under which they will be allowed to repatriate the 10 percent in cash and only the most general statements describe the rules for exchanging the 20 percent in zero-coupon bonds. This vagueness undermines the whole deal.


Unfortunately, it will be very hard to cut any deal until some clarity emerges about the Russian budget and the Russian economy for next year. Currently, foreign investors can have little idea what it is fair to expect Russia to pay or what the ruble will be worth. Zadornov's comments don't help.