Russia

Foreign Debt

Russia inherited a large foreign debt burden from the Soviet Union that clouds its economic situation. Throughout its history, the Soviet Union was a conservative borrower of foreign credits. Its ability to manage international accounts allowed the Soviet Union to obtain both government-guaranteed and commercial credits on favorable terms. But, by the end of the 1980s, the Soviet hard-currency debt had increased appreciably. At the end of 1991, the debt was estimated at US$65 billion, an increase of over 100 percent since the end of 1986.

By arrangement with the other former Soviet states and its creditors, Russia accepted responsibility for repayment of the Soviet Union's entire debt, in exchange for control of some of the overseas assets of the other republics. In January 1996, Russia's total foreign debt was US$120.4 billion, including US$103 billion of the Soviet Union's debt that Russia assumed. Russia has been hard pressed to service that amount.

In March 1996, the IMF approved a three-year loan of US$10.1 billion to Russia. At that point, Russia already had US$10.8 billion in outstanding IMF debts. The first loan payment of US$340 million was paid almost immediately, and it helped Russia to overcome a large budget deficit that it had been trying to cover by issuing securities. The IMF made the early monthly payments of the loan during Russia's 1996 presidential election campaign, despite Russia's failure to comply with several loan requirements. However, once Yeltsin had been reelected, the IMF withheld the July payment because Russia's hard-currency reserves had been severely depleted during the campaign and the tax collection system remained unsatisfactory.

In April 1996, the Paris Club of seventeen lending nations agreed to the largest debt rescheduling procedure in the history of the organization by postponing US$40 billion of Russian debt in order to assist Russia in meeting its international debt payments. The agreement followed the November 1995 provisional accord with the London Club of international commercial bank lenders (which spread repayment of US$32.5 billion over a twenty-five-year period) and the IMF loan of US$10.1 billion in March 1996. The new schedule gave Russia a six-year grace period for repayment on the principal it owes.