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. Last Updated: 07/27/2016

Fund Opposes Debt Write-Off




Two days before delegations from the International Monetary Fund and the World Bank launched talks in Moscow on the government's economic program, an article in a leading financial newspaper cast a shadow on the government's dealings with its international creditors.


An article entitled "Hard IMF Line on Russia Debt" published in the Financial Times on Sunday said the IMF had "advised the Paris Club of sovereign creditors that there is no need to write off any part of Russia's $42 billion of Soviet-era debt."


However, controversies over Russia's foreign debts are unlikely to change the positive tone of the upcoming talks, which will be dominated by the impressive economic performance of the government in the first months of the year, analysts said.


The government has carefully separated its economic program and debt restructuring talks with the Paris Club of sovereign lenders on the agenda for its talks with the IMF, which begin Tuesday.


"Creditors make their own conclusions about the state of the Russian economy; they do not base them on recommendations issued by the IMF," First Deputy Prime Minister Mikhail Kasyanov said Monday in response to the Financial Times article.


The IMF's tough stance was revealed a month after a German, Horst K?hler, was appointed managing director of the IMF.


K?hler's position is very similar to that of Germany, Russia's largest creditor, which vehemently refuses to write off any of the bilateral debt estimated at $24 billion.


In February, Russia made a deal with the London Club group of foreign banks that wiped out over a third of its $32 billion debt and substantially eased payment terms.


However, even though local officials have often said the nation's huge debt burden will cripple the economy, independent analysts said the debt issues were far from being the highest priority for the government.


"From a long-term perspective, a civilized restructuring will be better than writing off debt," said Yevgeny Kovalishin, researcher with the Institute for Financial Studies.


"Refusal to write off debts would force the debtor [Russia] to act decisively."


Kasyanov said Monday the government will not need to borrow money from the Central Bank in order to continue servicing its foreign debts.


In the past, Russia often relied on soft loans, postponing restructuring efforts needed to pull the economy out of a decade-long decline.


Analysts said Russia's long-term priorities were structural reforms, without which economic growth triggered by devaluation in August 1998 would come to a halt.


Data released Monday by the Russian Statistics Agency showed the economy was picking up steam, with industrial output edging up 1 percent in February compared to March and up 9.6 percent on a yearly basis.


In the first quarter of this year, household income was up 7.6 percent, retail sales increased 7.3 percent and wage arrears declined 8.8 percent to 39.88 billion rubles ($1.4 billion).


According to a poll conducted by the VTsIOM agency, 60 percent of Russians think the country can do without IMF loans.


In a clear gesture in the direction to the IMF, Russian Statistics Agency head Vladimir Sokolin pointed out that the cash component in revenues of the 2,000 largest corporations was up to 67 percent by the beginning of March, compared to some 40 percent at the end of last year.


For gas monopoly Gazprom, the proportion of revenues paid in cash had tripled since 1998 to 85 percent, while for national power grid Unified Energy Systems the same figure was up to 53 percent, up from 20 percent in 1998.


"We have finally fulfilled the targets the IMF set 1 1/2 years ago," Sokolin said.


He added that preliminary data indicated gross domestic product had increased at an annual rate of 7 percent in the first quarter of the year.


Last week, President-elect Vladimir Putin said GDP was up 8 percent in January-March.


Analysts said even allowing for the unusual methodology used by the Russian Statistics Agency, the figures clearly showed the general trend was up even if the growth rates cited were doubtful.


"Their statistics have got to be questioned," said Roland Nash, economist with Renaissance Capital investment bank. "You cannot even build a standardized time series on the basis of the reported data."


Nash added local statisticians adequately measured changes in consumer and producer prices, but the way they measured the GDP or industrial output caused a lot of concerns.


Sokolin moved to defend his fiefdom Monday, saying that U.S. statisticians were only catching up with their Russian peers, who inherited many powerful administrative tools from the command economy that collapsed in 1991.


However, he refused to disclose how his agency measured changes in GDP, saying the methodology was open to everybody but did not need to be disclosed in public because of its complicated nature.