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. Last Updated: 07/27/2016

$150Bln Debt No Problem, PM Says

Former debt market pariah Russia pledged to slash its debt burden to 40 percent of gross domestic product by 2005 from 50 percent now and said Wednesday it would have no problem coping with its $150 billion debt mountain.

In comments that boosted its Eurobond prices in London, Finance Minister Alexei Kudrin said: "We have worked out a medium-term debt strategy, the main aim of which is to reduce spending on redeeming and servicing state debt, as well as on reducing it to 40 percent of GDP by 2005,"

Officials in Russia's government, which aims to launch a $2 billion Eurobond this year as the first new sovereign issue since it defaulted on domestic borrowings in 1998, also shrugged off worries over repayments in 2003, feared at one time to be a particularly tough year.

"Today we can say with certainty that the notorious 2003 problem does not exist any more and the country can repay its debt in full," said Prime Minister Mikhail Kasyanov.

Speaking at a Finance Ministry meeting, he also said that the government should borrow more on domestic markets as it reduced its foreign debt.

On Wednesday the Finance Ministry transferred 1.03 billion euros ($900 million) to the Paris Club of creditor nations, Interfax reported a ministry source as saying.

Debt repayments next year had been expected to hit a high of $19 billion, but the government has said it has been buying back its own debt to reduce that amount.

According to market estimates, 2003 repayments are already down by $5 billion, although a Finance Ministry source said the sum due had not fallen that much, putting the total at nearly $17 billion.

The optimistic comments sent Russian debt prices higher in London. The country's long-dated benchmark, the 5 percent global bond due March 2030, was up 0.625 percentage points at 64.25 percent of face value bid by 3:50 p.m.

Despite the confidence, one leading analyst warned that a downturn in the economy, whose pace of growth has already slackened, would hit government plans.

"[The debt] is also a fairly big amount for the Russian budget, which this year will have revenues of $60 billion," said Oleg Vyugin, chief economist at Troika Dialog.

"If the economy continues to grow, there will be no budget problem. If there are problems with the economy, if growth rates go down, then there could be some anxieties," he told Ekho Moskvy radio.

Growth stalled in the fourth quarter of 2001.

However, the government insists GDP can still expand as much as 4 percent this year.

Finance Minister Alexei Kudrin told the meeting that the country's debt strategy involved reducing the total debt burden to 40 percent of GDP from 51.9 percent of GDP at the start of the year and an expected 48.2 percent by the end of 2002.

He was also upbeat about the economy, saying growth was no longer wholly dependent on high prices for oil, metals and gas, which account for around two-thirds of exports.

He said the government should aim to attract investments and continue to fight inflation, which at 18.6 percent in 2002 instead of the planned 12 percent to 14 percent was well above target.

Kudrin was also pleased that capital flight had fallen by almost $8 billion in 2001 to $17 billion.