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. Last Updated: 07/27/2016

Putin Orders Paris Club Debt Paid

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President Vladimir Putin has given the government three weeks to patch up differences with the Paris Club of creditors, an order that is sending ministers scrambling to find the $1.6 billion needed to pay a first quarter debt they had hoped to partially skip.

"Russia never refused, and is not refusing, to fulfill its financial obligations to creditors," Putin said Friday at a meeting with Prime Minister Mikhail Kasyanov and other top government, Central Bank and Kremlin administration officials.

"There are problems of certain character. They are of a technical character and must be resolved within two to three weeks during intensive contacts both with the country's parliament and our partners in international financial organizations," Putin said in televised remarks.

Russia drew a sharp response from the Paris Club after it said earlier this month that it would pay only a small part of the $1.6 billion it owed to the group in the first quarter. The government, eager to restructure $38.7 billion of Soviet-era debt owed to the Paris Club, had said it cannot make full payments of $3.8 billion due this year.

After Putin's intervention, Kasyanov met leaders of factions in the State Duma and announced that the 2001 budget would have to be amended to direct additional revenues toward paying the foreign debt bill.

"We cannot get out of the situation connected to the Paris Club without changing the budget," Interfax quoted Kasyanov as telling journalists.

The budget currently states that if there are additional revenues amounting to up to 70 billion rubles ($2.47 billion), they are to be split 50-50 between domestic needs and foreign debt. If the extra revenues are higher than 70 billion rubles, only a third will go to foreign creditors.

Finance Minister Alexei Kudrin said Saturday that the government would seek to amend the budget by mid-February. "We will have some extra revenues that it would be expedient to direct toward paying debts," Kudrin said, referring to an anticipated windfall from exporting oil at a price higher than originally budgeted.

"We are now assessing these possibilities," he said, adding that consultations would take place with representatives of the Duma, the International Monetary Fund and the Paris Club.

Asked about debt payments that might be missed during this negotiating period in the first quarter, Kudrin said: "By mid-February, Russia will determine all of the main periods for settling these missed payments."

Putin, who had previously kept aloof from the debt dispute, made clear Friday that foreign debt payments would not come at the expense of other needs.

"We must fulfill the budget law and fulfill our social obligations to the population," he said. "This means that, on the one hand we are not going to take any measures or actions unilaterally, but the government in the nearest future must speed up its efforts in working with the State Duma and with the International Monetary Fund and the Paris Club."

Russia cannot start formal negotiations with the club before it signs an agreement with the IMF, whose mission is expected at the start of February.

"We are waiting for the IMF mission and we will agree on final forecasts for this year," Kudrin said Saturday.

Kudrin said the problem with creditors might be resolved by adjusting the 50 percent share of additional budget revenues that is currently allocated for debt payments. "It looks like we will need more, 70 percent would be better. That would help us to deal with the problem," he said.

Much will depend on the international price of oil, one of Russia's main export earners. The 2001 budget projects an average price for the year of $21 per barrel. Russian Urals blend crude is currently quoted at about $25.50 per barrel.

Kudrin said the IMF had originally forecast a price of $28 per barrel, which the government considered unrealistic.

"In December, the IMF returned to a price forecast of $23 per barrel for Urals. This is more realistic," he said.