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. Last Updated: 07/27/2016

Duma Calls for Loan to Cover Paris Club Debt

A loan from the Central Bank is the best way for the government to service its debt to the Paris Club of creditor nations, senior deputies in the State Duma said Tuesday.

Prime Minister Mikhail Kasyanov said last week the government, facing tough talks with the club, would ask the lower house of parliament to revise the 2001 budget so that a greater share of any extra budget revenues could be allocated for foreign debt servicing.

But Duma banking committee head Alexander Shokhin said the Duma would hardly support this proposal because deputies had agreed to pass a tight 2001 budget in exchange for a fixed distribution of additional revenues.

Shokhin advised the government to use the Central Bank’s burgeoning reserves to pay debts to the Paris Club falling due in the first quarter. The Duma, which has to approve such borrowing, would support the government, he said.

"The easiest way is to borrow from the Central Bank. The Duma will support it. It always supports the government, even when it believes that the government is not quite right," Shokhin told a news conference.

He said the government was likely to present its proposals on Paris Club debt repayment to the Duma in mid-February.

The 2001 budget doesn’t provide for $3.8 billion for payments to the Paris Club this year, nor does it allow the government to borrow from the Central Bank.

The budget states that if there are additional revenues up to 70 billion rubles ($2.47 billion), they are to be split in half between domestic needs and foreign debt. If extra revenues exceed 70 billion rubles, 70 percent will go to foreign debt.

The government, which hopes to restructure and partially write off the $38.7 billion of Soviet-era debt it owes to the Paris Club, angered creditors earlier this month by saying it would not pay in full $1.6 billion owed in the first quarter.

Kasyanov has said funds are tight and social spending would not be cut for the sake of paying foreign debt, but he has opposed borrowing from the Central Bank, saying this would undermine macroeconomic stability.

Central Bank gold and foreign exchange reserves are near post-Soviet highs at $27.8 billion. But the bank’s first deputy head, Tatyana Paramonova, said the bank would lend money to the government only as a last resort.

"Only if there are no other sources, then, under the law, such an option could be used," Paramonova told reporters on the sidelines of a banking conference.

Duma budget committee head Alexander Zhukov told the weekly Moskovskiye Novosti the government should not count on extra revenues that could only appear in the second quarter.

"I am against such a notion as extra revenues. One should prepare a realistic budget, while extra revenues, if there are any, should only be a mechanism compensating for the inaccuracies of the budget," Zhukov said.

"If we have to pay in the first quarter, the cheapest way is to take a Central Bank credit."