Russia Postpones Its Deadline
For $40 Billion Restructuring
By BETSY MCKAY
Staff Reporter of THE WALL STREET JOURNAL
MOSCOW -- Russia has postponed by a week a deadline for a
controversial $40 billion debt restructuring, saying it wants to
accommodate demands by foreign investors for better terms.
Alexander Shokhin, Russia's new deputy prime minister responsible for
finance, said the terms of a forced restructuring declared last month could
be modified but said investors shouldn't expect a complete reversal of the
previous government's de facto default.
Likely to get the best terms, however, will be
Russian holders of frozen domestic debt. To
try to revive Russia's paralyzed banking
system, the Central Bank said Thursday it will
purchase the treasurys of select Russian
institutions at their nominal value.
Ruble Weakens Further
The buyback will be funded by the emission of new money, a policy shift
likely to fuel inflation and further depress the ruble. The Russian Central
Bank Thursday set its official exchange rate at 14.6 rubles to the dollar,
compared with 12.45.
At a U.S. House International Relations Committee hearing Thursday,
Clinton administration officials fended off lawmakers' suggestions that the
U.S. and the International Monetary Fund cut Russia off from new loans
and leave the country to fend for itself in private capital markets.
"I don't think that's a realistic prospect at all," said Deputy Treasury
Secretary Lawrence H. Summers, who stressed that Russia won't get the
second tranche of its IMF package unless it takes profound steps to return
to the path of free-market reform.
Among the steps he advised the Russians to take: improve tax collection,
reduce spending to shrink the budget deficit, strengthen the banking
system, and adopt commercial laws so everyone knows the rules of the
game.
The Russian government is under strong pressure to assist Russia's banks,
many of which are now insolvent, having gambled heavily on the
now-frozen Russian debt market. Russians hold the bulk of short-term
treasurys covered by last month's restructuring. As well as buying back
some short-term paper, the Central Bank said it will also lower the reserve
requirements for these same institutions. This will reduce the amount of
cash they are required to keep with the Central Bank and free up funds for
payments.
Reform Politically Difficult
Analysts criticized the plan, saying Russia needed to close inefficient and
insolvent banks rather than issue money to save them. Banking reform is
politically difficult because leading Russian banks helped fund President
Boris Yeltsin's presidential campaign and have links with other political
forces. Robert DeVane, an independent investment consultant in Moscow,
said special help for Russian banks would anger foreign investors, who
complain they have been discriminated against in the restructuring of
government debt.
Foreign investors, who hold $11 billion of the defaulted Russian treasurys,
aren't covered by the proposed buyback program. Over a dozen Western
banks signed a statement Thursday calling on Russia to revise the original
restructuring terms to reduce their losses.
Mr. Shokhin said a delegation had been appointed to hold talks with
Western investors and criticized the handling of Russia's financial crisis by
the previous government. Foreign investors say Russia's forced
restructuring will shut Russia out of international capital markets for years.
The new government has tried to repair some of the damage. Mr.
Shokhin, said a deadline originally set for Friday for investors to join an
initial restructuring arrangement had been moved to Sept. 25. Foreigners
condemned the original terms as confiscatory.
Russia's economic direction remains uncertain. Mr. Yeltsin said Thursday
that it will take another week for the new prime minsiter, Yevgeny
Primakov, to name a full cabinet.
--Michael M. Phillips contributed to this article. |
