Zee Beam News

Aug. 29, 2006 Kommersant - by Sergey Minaev - Russia cleared the Soviet debt for the Paris Club last week. Russia took it bickering, so was it, giving it back. Kommersant Vlast columnist Sergey Minaev has the story. Terms of the loan can be found in foreign press. On March 5, 1972, The New York Times wrote the USSR had started to fail its economic plans in spring because of severe frosts in wintertime which killed all winter crops and disrupted the regular work of all industrial enterprises. The Soviet economy pinned its hopes on securing a $1.5 billion credit from Japan to develop Siberia. The strive of Soviet authorities to get the money whatever it takes despite the political ambiguity of the situation shows that the country needed cash badly. The same American newspaper noted on May 11 that Kissinger failed at talks with Brezhnev in Zavidovo because the unbending Soviet stance. The evidence of the position was Russia's strive to secure from a European banking group a $1 billion credit with such a low interest rate that will hardly cover the bank's expenses on giving the credit – no more than 3/8 of a percent point above the LIBOR rate. A report appeared on December 23 that the credit would be given but it would be only $300 million with a higher interest rate. The newspaper said that the story with the credit was a test for an ability of competing Western financial institutions to "confront the Soviet pressure". On December 21, 1973, The New York Times quoted Soviet First Deputy Foreign Trade Minister Semichastnov as saying that the Soviets will fulfill their obligations on oil supplies to the West but said the supplies would not be increased to battle the world oil crisis. Semichastnov underscored that the USSR sent 45 million metric tons of oil to the West in 1972, and 62 million tons went to socialist countries. He also said he hoped that "business circles and progressive forces in the United States will not let Soviet-American projects in Siberia be because of restrictions on large U.S. state credits to Moscow." Semichastnov also announced that the American party agreed to give the USSR a $47 million credit to build an international trade center in Moscow. On May 24, 1974, The New York Times quoted Congressman William Cotter who said the 6 percent annual interest rate for the $180 million state credit that the USSR received to build a plant to produce fertilizers is "an insult for millions of Americans who pay much more for their loans." The Congress representative also said that a benefit for the United States from the credit was a myth since the USSR had not promised to export the fertilizers to America. On October 7, 1986, the Financial Times reported that Finnish Prime Minister Esko Ollila had urged to settle Finland's trade surplus with the USSR (4 billion Finnish marks), otherwise Western countries would accuse Finland of an illegal business practice calling this money an interest-free and permanent loan to the Soviet Union. All in all, there have always been problems with the West giving money to Soviet authorities. Even when money went to private banks, the deal was considered a political one and attracted the society and media's attention. Things were worse when governments allocated money at the expense of their tax payers. The USSR, Western countries and Japan always bickered over the size of credits, their interest rates and purposes. There was argument even when oil prices were lofty, as in 1973, or then they were at their lowest, as in 1986. The USSR always needed foreign money. Foreign governments found a consolation in the fact that the world leader of oil production could not fail to pay off its debts, so giving loans to it was quite safe in terms of finances compared to giving money to African or Latin American countries. Russia did pay off, but it took two restructuring of the Soviet debt to the Paris Club – in 1996 and 1999. Russian authorities have taken the Soviet practices in the recent years. It seemed quite natural because when it concerned Soviet debts. Russia noted that it was paying off the debts with a higher interest rats than G7 nations did, and therefore preferred to clear the debt ahead of schedule. Russian officials even mentioned the capitalistic exploitation of Russian workers by Western governments. The propaganda used to say in the Soviet times that imperialistic powers threw their money to developing countries on crushing terms to make fortunes on interest rates. Paying off the debt ahead of schedule has turned into a bargain. When Russian first mentioned clearing the first part of the debt ahead of time it insisted on getting a bonus for this. Western nations, however, replied that they were actually losing money on this operation, so there should be a fine. The argument went like this: Russia has enough money if it is so willing to pay in advance but Western government and tax payers have none. First, they came to a compromise: no bonus but no fine. But the West ended up with imposing a fine. The parties have exchanged final remarks as Russia presented the debt payment as a proof of an amazing success of its financial policy even though creditors made it clear that it was mostly due to high oil prices, so the money was taken from Western tax payers. The Soviet debt story stopped at that.