Loans to Soviet war machine still hard to repay

  Western economic "blood transfusions" to the former Soviet war machine still have to be paid back, but the new breed of Moscow leaders supposedly finds this repayment of old debts very difficult.  From a Stratfor comment received on 31 July 1999 we read:

"Moscow . . . has already begun arguing to international lenders that Russia is simply unable to pay its debt.  According to Russia's Interfax news agency, Moscow informed the IMF [International Monetary Fund] in a document that Russia's foreign debt amounted to $150 billion, or 90 percent of its GDP [Gross Domestic Product] for 1999.  The document called the figure, 'well beyond any realistic threshold for repayment capacity.'"

Global Intelligence Update, July 30, 1999
"Touting Barter, Russia Continues its Economic Regression"

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[The "Western" bankers and the industrial-military complex has so arranged things that the major way the crooked ex-Communists now in charge of Moscow can buy foreign goods is by selling weapons and nuclear power plants. This is making the world a more dangerous place.]

The document also stated that Russia was still actively trying to reschedule Soviet-era debt accumulated before January 1, 1992, while simultaneously attempting to pay its more recent debts.  [None of the influential Western politicians ever thinks to ask WHO was lending all this credit for more than 70 years to the so-called anti-capitalistic dictatorship.]   Read the full article:-

Touting Barter, Russia Continues its Economic Regression

Summary: Moscow has begun floating barter schemes for international trade and for the repayment of debts to Russia.  This comes on top of a report that Russia's industrial output has risen, though serving only domestic consumers who cannot afford imports.  The only major export growth being experienced by Russia is in arms sales.

Finally, Moscow has made it clear that it is simply unable to service its international debt.   Russia's economy is introverting, reverting to a model reminiscent of the old Soviet Union.  Closed off by inefficiency and lack of foreign capital, it is focusing its domestic economy on meeting domestic needs, limiting its interaction with the global economy for the most part to barter in machinery and raw materials, and earning its foreign currency with arms. The seal on this introversion may arrive in the form of default on international loans.

Analysis: Russian First Deputy Premier Viktor Khristenko proposed at a meeting of the Confederation of Indian Industry in New Delhi on July 29 that India repay its debt to his country by establishing joint ventures in India that would produce civilian aircraft.

The proposed ventures also include Russian upgrading of coal and power plants, and leasing of aircraft to India. Khristenko also signed an agreement with Indian Finance Minister Yashwant Sinha about partial repayment of the Indian debt by establishing a new nuclear power plant in India.

Similarly, Russia is currently negotiating an agreement with Ukraine on repayment of a portion of Kiev's gas debt to Moscow in the form of 10 strategic bombers.   Ukraine has offered to supply Tu-160 and Tu-95 bombers to Moscow.  On July 28 Russian Foreign Minister Igor Ivanov proposed a barter agreement between Russia and the Association of Southeast Asian States (ASEAN).

"In view of the foreign exchange constraints in Russian and the ASEAN countries, the use of a mutually linked trade mechanism could be a promising area of trade relations for instance, food supplies to the Far East regions in exchange for Russian machinery and equipment," Ivanov said.

Russia's return to barter reflects both the non-competitiveness of Russian products and the strains imposed on Russian foreign currency reserves by the country's massive foreign debt.  Reminiscent of the Soviet economy, during which the non-convertible ruble forced exchanges like Pepsi syrup for Stolichnaya vodka, it is just one aspect of Russia's economic regression.

Another feature of Russia's economic regression is its increase of industrial production to serve impoverished domestic demand while exports are on the decline.   On July 15, the Russian Statistics Agency announced that Russia's industrial output was up 3.1 per cent in the first six months of 1999 as compared to the same period the previous year.  

Officials said the fall of the ruble made Russian goods cheaper to manufacture and more competitive in the domestic market, where imports have become too expensive for most Russians.  At the same time, Russia's GDP fell 2.9 percent year-on-year in the first six months of 1999.  The only place Russian exports are surging are in the arms industry.

Russia may be focused on barter because it can neither compete abroad nor afford imports, but this does nothing to help Russia's debt crunch.  And giving its own debtors relief in the form of barter arrangements further limits Russia's ability to service its own debt burden.  As it awaits additional loans to apply to its existing loans, Russia is heavily tapping its existing currency reserves.  

Russia's ITAR-TASS news agency has reported that, due to government debts, Russia's gold and currency reserves plummeted by $300 million during the week of July 9, to $11.8 billion. Barter may free up more of Russia's reserves for debt service, but without income from exports or payments from Russia's debtors, this is simply not sustainable.

Moscow is aware of this, and has already begun arguing to international lenders that Russia is simply unable to pay its debt. According to Russia's Interfax news agency, Moscow informed the IMF in a document that Russia's foreign debt amounted to $150 billion, or 90 percent of its GDP for 1999.  The document called the figure, "well beyond any realistic threshold for repayment capacity."  The document also stated that Russia was still actively trying to reschedule Soviet-era debt accumulated before January 1, 1992, while simultaneously attempting to pay its more recent debts.

In an interview published by AP Worldstream on July 23, Russian envoy to international financial organizations Mikhail Zadornov said Russia will see no economic growth for at least a decade unless the debts are rescheduled, because Russia's debt payments to foreign countries almost equal its expected revenue.  Russia is supposed to pay between $13 billion and $19 billion per year to foreign lenders until 2008.  Zadornov said that while Russia is scheduled to pay out $17 billion of its approximately $20 billion in revenues, these creditors will not see more than $9 billion.

Having failed to rise above its Soviet roots, Russia's economy is rapidly reverting to the Soviet model, collapsing into the protectionism of non-competitiveness.  Reform has failed.  Investment has dried up.  Unable to compete abroad, Russian industry has begun to focus on domestic consumers who are unable to afford imported goods.  

With little to offer but raw materials and weaponry, and no currency to spare, Russia is drafting an international trade model based on bartering the resources and selling the arms.  And with most of its arms sales earnings already earmarked for rebuilding its debilitated military in the face of open NATO contempt and presumed hostility, Russia will quickly find itself truly unable to service its debt.  Its default could put the seal on Russia's economic introversion, as its economy closes off from the world and the ruble is again unconvertible.

Still, the Soviet economy did not collapse when it remained isolated from the world.  It collapsed when it attempted to integrate with the world economy and thereby exposed its vast inefficiencies and inferiorities.  The Soviet Union had the Soviet Republics and it had COMECON.  It survived in isolation, exchanging shoddy farm machinery for substandard electronics, but with food and shelter and employment for all -- however mediocre.

Given the current economic situation in Russia, there is more than a little sentimentality for the COMECON days. What is missing are the partners.  Russia's economy is not complete.  It needs the Slovak telephones and the Ukrainian wheat and the Kyrgyz cotton.  The question is not whether Russia's economy will continue to regress.  The question is, which of its former COMECON partners will it take with it.  It already has Belarus, and is eyeing Kazakhstan and Ukraine. -- © 1999, Stratfor, Inc.  (Emphasis added by J. Massam.)

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