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. Last Updated: 07/27/2016

Finance Minister Plays Down Foreign Debt Row

Finance Minister Alexei Kudrin on Thursday played down a row about how much of its Soviet-era debt it will repay to foreign creditors after signs it was taking on a wider political dimension.

Russia says it can afford to service only a small part of the $1.6 billion it owes to the Paris Club of creditor nations in the first quarter of this year but the Club says it expects full payment.

"We are not talking about non-payment by Russia now, we were not talking about it before," Itar-Tass quoted Kudrin as saying. "Russia has previously agreed...with the Paris Club and will agree now."

The government says it has no money for full debt payments since prices for Russia's main energy and commodity exports are expected to be lower this year than in 2000 and structural reforms to the economy still have to be carried out.

But in a sign of creditors' frustration with Russia, German Deputy Finance Minister Caio Koch-Weser threatened to block Moscow's drive to join the Group of Seven leading industrial nations on an equal status with other members. Germany is Russia's largest creditor.

"The current behaviour of Russia is inconsistent with the demand of becoming a full member of the G8," Koch-Weser told the Financial Times Deutschland newspaper.

Germany has previously supported Russia's request to join the G7. Russia attends G7 meetings but doesn't have the same membership rights.

Kudrin said Russia could still aspire to become a full G8 member and added "the question of Russia's payment of debt to the Paris Club is not a political one. This is a question for negotiations with the Paris Club," Kudrin said. He left open the question of how much Russia would pay.

As well as causing increasing annoyance to foreign creditors, different signals are emerging from Russian leaders on the debt issue.

On Wednesday, President Vladimir Putin's economic adviser, Andrei Illarionov, criticised the government, saying Russia was not behaving like a civilised state and and that Putin was likely to support him.

Illarionov said Russia could and ought to pay its debts, especially since the influx of petro-dollars had led to an overvalued rouble.

He likened the government's behaviour to petty hooliganism "like ripping away cords in telephone booths, breaking windows or relieving oneself in a doorway".



KUDRIN SAYS RUSSIA WILL MEET OBLIGATIONS

The government has even said cold weather in Siberia is adding to its problems as regions needed more money for fuel.

Meanwhile, central bank reserves -- near post-Soviet highs at $27.8 billion -- are said to be untouchable as they are a buttress for the rouble currency and ensure macroeconomic stability.

The government is seeking to restructure $38.7 billion of Soviet-era Paris Club debt and cites the principle of equal treatment of creditors, referring to a deal with the London Club of commercial lenders, which reduced debt load by one-third.

Formal negotiations with the Paris Club cannot start until Russia reaches an agreement with the International Monetary Fund, although informal consultations are expected to take place in Paris on Jan. 24.

The IMF, whose mission is due in Moscow in early February, has differed with the government over revenue forecasts for this year, which will depend largely on world oil prices.

The government has said that, if oil prices this year are above the average $21 per barrel projected in the budget, it could use half of extra revenues for foreign debt repayment. Urals crude oil was trading at about $23.50 on Thursday.

"The logic is simple: if the revenue and oil price forecast for this year is more optimistic than the budget one, then the government together with the (State) Duma (lower house of parliament) will consider the question of allocating additional revenues," Kudrin said.