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. Last Updated: 07/27/2016

Getting Russia to Pay for Its Defaulted Bonds


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In response to "Predicting the Next Aug. 17," a comment by Marshall I. Goldman on Aug. 21.

I must point out a serious factual error in Goldman's article when he writes, "Russia has paid off most of the state's debt."
This is not the case. The author's statement shows that holders of defaulted Russian government bonds have remained silent for too long. A newly formed group of holders of defaulted Russian government bonds intends to break this silence.
A 1999 French government census counted 316,000 holders of defaulted government bonds, to whom the Russian Federation collectively owed more than $40 billion based on the 1997 price of gold as per independent estimates.
Despite Russian claims that the matter of Russian debt to French bondholders is now settled, not one single bondholder has agreed to any settlement on this claim. Indeed, Russia has been refusing any form of contact with the bondholders for the past 90 years.
We believe that Russia would greatly benefit from settling this notorious debt. Russian reserves are sufficient to do so, and I am sure bondholders would consider a debt-exchange agreement.
Eric Sanitas
President International Association of the Holders of Russian Bonds
Beaumont, France

Goldman responds:
As for the bonds Sanitas refers to, I wish him luck, but I would not hold my breath. It is true that the Russian government has the money, but just as in the 1920s and 1930s, after World War II and Lend Lease, I doubt very much that the Russian government will pay those back -- at least at face value. During these periods, bondholder groups were formed in an effort to pressure the Russian government to pay its debts. There was a willingness to repay some of the tsarist and Lend Lease debt but at greatly reduced discount. At best, this is what I suspect the Russians will propose, if they propose anything at all.
Marshall I. Goldman
Senior scholar Harvard University's Davis Center
Cambridge, Massachusetts

The Russian-Georgian War

President Dmitry Medvedev has recognized South Ossetia and Abkhazia as independent states. It was a bold decision, and I congratulate him for this courageous effort. Not all leaders of the world are able to stand up against the West. This is because most nations are dependent on the United States and the West.
Minhaj Ahmed Dhaka, Bangladesh

I'm a little puzzled about something. Five years ago, 90 percent of South Ossetians and Abkhaz freely accepted Russian citizenship. By doing this, under Georgian law, they automatically lost their Georgian citizenship, which they probably were more than happy to be rid of.
If I were to take the citizenship of a foreign country and give up my British citizenship, it would be only fair that I should be subject to immigration control in Britain and should have the right of residence only in the country of my new citizenship.
Until this August, Russia reaffirmed, time and time again, that South Ossetia was part of Georgia, including in Security Council Resolution 1808. Why then did Russia not use the past five years to relocate its newly naturalized Russian citizens to its own territory?
Michael Petek
Brighton, Britain

Georgian President Mikheil Saakashvili made a fatal error in his thinking that by attacking South Ossetia the United States and other NATO or European Union members would come to his aid. This scenario did not materialize. The West should punish Georgia for this terrible mistake, not Russia.
Washington is bogged down in Iraq and Afghanistan and has other military commitments in many other locations around the world. I think Abkhazia and South Ossetia will be better off as independent countries with their own. These two provinces have their own right to self-determination and can never be apart of Georgia again.
Richard Fletcher

In August 1999, after being provoked by a raid on Dagestan by Chechen rebels, Russia started an air campaign against Chechnya, followed by a massive ground attack in the following months. As a result of that, the Chechen capital, Grozny, was completely destroyed, tens of thousands of Chechens died, and even more Chechens had to flee their country. Chechnya at the time was a separatist region. It was de facto independent and out of the Russian sphere of control. Legally, however, it remained an integral part of the sovereign Russian state.
Now turn the clock forward nine years. In August 2008, after being provoked by South Ossetian militias and by Russian peacekeepers, Georgia attacked South Ossetia with ground forces and Grad missiles. As a result of this, the South Ossetian capital, Tskhinvali, was destroyed, an unknown number of South Ossetians were killed and tens of thousands of South Ossetians had to flee their homes. South Ossetia at the time was a separatist region -- de facto independent and out of the Georgian sphere of control. Legally, however, it remained an integral part of the sovereign Georgian state.
If Russia considers Georgia's actions illegal and Georgian President Mikheil Saakashvili a criminal, what about the Russian actions in Chechnya? Wouldn't then-President Vladimir Putin be a criminal as well?
If Russia affirms the right of independence for South Ossetia, why doesn't the same apply for Chechnya?
Paul Cordy
Antwerp, Belgium

I am very devastated about Russia's behavior in the South Ossetian conflict.
I strongly believe that whole this conflict was initiated from Russia's imperialistic government.
I am from Abkhazia. Sixteen years ago, 300,000 ethnic Georgians were displaced from their hometowns by Abkhaz separatists backed by Russian government. For me it is a big question -- what are Russian peacekeepers doing in those two breakaway regions? They have no right to be there.
Manana Gogua
Spring Valley, New York

During the conflict in South Ossetia, we heard from the Russian side that seven foreign soldiers were killed in action, three Americans and four Israelis. The U.S. government denied that report. It is important to know whether or not U.S. soldiers fought on the Georgian side in South Ossetia.
T. Shinbrot
East Brunswick, New Jersey

Propaganda Doesn't Work

In response to "Georgian Crisis Is a Trap for U.S. Leadership," a column by Fyodor Lukyanov on Aug. 21.

Russians are much more skeptical of government propaganda after having lived through the Soviet propaganda. Moreover, more Russians are learning English and have access to Western media reports, including the Internet.
Patrick Verswevelt
Lummen, Belgium

How Hermitage Was Raided

Corporate raiders stole three companies from our client, Hermitage Capital Management. These companies were subsequently used to steal $230 million from the Russian budget.
It's an absurd and depressing story. With the help of civil servants, raiders brought baseless tax evasion charges against the management of Hermitage in order to justify search warrants. They then seized the companies' documents and seals during a search of our law offices and used these items to steal the companies. The thieves then claimed tax overpayments on behalf of the stolen companies, and the budget refunded $230 million in record time.
Hermitage has repeatedly appealed to the Russian government for help and has been ignored. Meanwhile, law enforcement agencies continue to bring charges against Hermitage employees and to quash the complaints made by the company.
Last week, a mysterious envelope bearing incriminating documents was delivered to Hermitage's lead advocate. Minutes later, his offices were raided by police who, of course, immediately "found" the damming envelope and started proceedings against him.
This is a game perfected under Stalin. It seems that the police have a script and are going through the motions of following it. The script doesn't have to make sense because there is no oversight.
President Dmitry Medvedev challenged the lawyers of Russia to combat "legal nihilism," but without government oversight of the police, there is no need. The fact that these absurd and lawless actions can take place in full public view without any government intervention rightly destroys investor confidence, respect for government and faith in law.
Is this what is to be expected under Vladimir Putin's "dictatorship of the law"?
Jamison R. Firestone
Managing Partner Firestone Duncan law firm