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. Last Updated: 07/27/2016

State Sets Sights on Cheaper Interest

The government will seek to raise debt at lower interest rates on foreign markets to keep payments low next year and decrease its total debt before a 2003 peak in payments to foreign creditors, a deputy finance minister said.

Sergei Kolotukhin said in an interview published Thursday that Russia would try to borrow $1 billion to $2 billion at less than 10 percent to create fresh reserves while decreasing interest payments.

"Our task is to borrow at less than 10 percent," Kolotukhin told the business daily Vedomosti, adding that potential Eurobond issues could be denominated in dollars and euros.

"Prospects for a change in our credit rating will be clear only at the beginning of next year. My contacts with investors tell me that the rates on Eurobonds will be near the levels of 1996-97," before the August 1998 debt default that wrecked Russia's position on the international capital markets.

He said Russia would try to cut its total debt to 40 percent of gross domestic product by 2003 from 50 percent of GDP now.

Russia is gearing up to make $18 billion to $19 billion in payments on foreign debt in 2003 and has laid out plans for a budget surplus and a return to the capital markets in 2002 to make them on time. Russia must pay $14 billion next year.

"It would be unreasonable to enter the market in 2003 when everyone knows you have a payment peak. The rates will rise," Kolotukhin said.

He said Russia still saw a partial write-off of a $42 billion debt to the Paris Club of state creditors as ideal but believed it was unlikely.

He said that Russia also had to restructure debts to creditors outside the Paris Club. Without a restructure, he said 2003 payments would rise to $20 billion or $21 billion.

He said Russia would only seek to restructure payments to the Paris Club in 2003 if its debt-raising plans failed.

"Of course it is more effective to restructure the Paris Club debt than borrow on the foreign markets," he said. "In the first case the rates would be 5 percent to 6 percent, and in the second they would be 12 percent 13 percent."

"But even if we restructure at low rates, we won't solve the problem at the root … And any increase in interest payments means a forced decrease in payments on principal, with consequences for the country's economic development."

Kolotukhin also said the Finance Ministry planned to announce a tender to buy out its debt from creditors.

Analysts said this week that plans to tap the Eurobond market next year were sound.

"Having finally understood that it is impossible to count on the IMF the government has decided to put its money on private credits," NIKoil analyst Alexei Kazakhov said.