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. Last Updated: 07/27/2016

U.S. Suspends Russia From Loan Program

The U.S. Agriculture Department has suspended Russia from a key loan guarantee program after it missed a $21 million debt payment in mid-August.

The payment was an installment on $2.5 billion in loans that Russia got in the early 1990s from the USDA's Commodity Credit Corp. under various programs to buy U.S. farm products.

"They have been very good up until now in meeting all of the payments," USDA sales manager Chris Goldwait said Wednesday.

But the $21 million due in mid-August is now more than several days late, he said.

Russia's agriculture and economy ministries declined to comment Thursday on the delay.

Suspension of the program will not significantly effect Russia's imported food market, said a Moscow-based World Bank official, who asked not to be identified. He estimated Russia would import $65 billion to $70 billion worth of goods in 1998.

The loan suspension also is unlikely to have an impact on the biggest U.S. farm export to Russia, poultry. Poultry, in dollar terms, accounts for two-thirds of U.S. agricultural exports to Russia and most sales are financed through other mechanisms.

Analysts said Thursday that the loan default, coupled with the August moratorium preventing banks from repaying foreign loans, dealt a double blow in damaging Russia's attractiveness to investors.

"When the state shows that it has gone bankrupt, it is even more shameful and worse," said Georgy Arbatov, director of the USA/Canada Institute research center. "Normally, the state gives guarantees, and here the state has shown its insolvency. This is really bad."

However, Arbatov said the program's suspension may give Moscow the jolt it needs to start ending its dependence on Western food imports.

"Russia has sat on a needle like a drug addict, borrowing money to pay off foreign food supplies," he said.

"Maybe now they will have to turn to the Russian agriculture sector," he said.

Russia owes the Commodity Credit Corp. nearly $2 billion for guaranteed loans made to the former Soviet Union in the early 1990s under the department's GSM-102 program, which guaranteed that loans made by private lenders would be paid even if the borrower defaulted. The missed payment in August stems from those obligations.

Russia also owes the Commodity Credit Corp. another $500 million for direct loans made by the USDA under a separate food-aid program.

In fiscal 1998, which ends Sept. 30, Russia used $50 million in GSM-102 loans to buy U.S. meat products and left untouched another $45 million in loans. In fiscal 1997, Russia purchased $105 million worth of U.S. farm goods under the program.

Russia will remained suspended from the GSM-102 program until it clears up its arrears, Goldwait said.

The country's financial woes could also influence the size of any export credit program for Russia in fiscal 1999, assuming it catches up on its payments, he added.