The West giddily plays a Russian debt shellgame

July 4, 1999

St. Petersburg, Russia -- Debt hangs like a millstone `round Russia's neck. So when IMF Chief Michel Camdessus was having a midnight meeting with Russian Premier Sergei Stepashin on the canals of St. Petersburg, local cartoonists showing the Premier serenading the well dressed IMF Chief jibed, "Stepashin woos Camdessus in the Venice of the North."

Days later, leaders -- or better said politicians -- representing the world's industrial nations at the G-8 Summit in Cologne dangled the latest financial carrots before Russian President Boris Yeltsin. The Western politicos and Japan announced their willingness not only to reschedule Russian debt if Moscow complies with the IMF's latest guidelines, but also floated the idea of restructuring Russia's $70 billion Soviet era debt.

Addressing the prestigious St. Petersburg Economic Forum, Camdessus exclaimed "there was no reason for Russia not to move forward and join the epoch of wealth and prosperity." However he warned that Russia still faces the ills of failing banks, unproductive factories, and corrupt officialdom.

Look at the bottom line. The current sought after albeit quick fix IMF loan for $4.5 billion would simply help cover some debt payments Russia must make for 1999. This year alone, Russia owes $17.5 billion, yet Moscow concedes it can pay only half the sum. Soviet era debt stands at $70 billion while total debt stands at $145 billion! Most is owed to German banks who have been giddily eager to finance what often seems like a financial shell game.

Russian Premier Stepashin concedes "External borrowing must be brought under strict control. Without this we will live in a state of legal nihilism." He also criticized the pervasive "shadow economy" where huge amounts of foreign currency are circulating. The Premier is philosophically on target.

Yet the local St. Petersburg Times added editorially, "Incredibly enough IMF Chief Michel Camdessus came out in fulsome support of Stepashin and his government's economic course...painting a picture of Russian economic performance much rosier than even most government ministers would dare to paint...but the tenor of Camdessus remarks made it obvious that political considerations were guiding his words."

Needless to say that after last August's Russian financial trauma, foreign bankers and investors are sensitive about any moves which could trigger a relapse.

At the Summit, Bill Clinton promised Yeltsin that the U.S. would push for serious debt relief, although Germany -- who holds the lion's share of the Soviet era debt -- was not so sanguine. German Chancellor Gerhard Schroeder though pressed to write off much of the Soviet debt, will hopefully not let emotion outride fiscal prudence. After all, the billion dollar loans represent transferred wealth not frivolous gifts.

Curiously the Western debt relief moves towards Moscow, paralleled a roller coaster week of negotiations in which Washington tried to defuse the tensions in Kosovo after NATO was upstaged by the Russian military moves into Pristina.

According to the Wall St. Journal Europe, "the timing of the two agreements appeared more than coincidental. Indeed Russian Finance Minister Mikhail Kasyanov was "unofficially" in Germany to meet with his German counterpart Hans Eichel to feel out German recptivenees to the debt rescheduling."

The Debt relief deal immediately after the Kosovo Russian troop compromise decidedly evoked an image of the West giving Russia a financial quid pro quo for its political "considerations" in Pristina. While debt rescheduling is a laudable move to help those who truly want to help their economy, one presumes it means helping the country not themselves.

Russia's debt dilemma reminds me of the famous folkloric Matushka dolls -- each layer of the egg shaped doll reveals a new personality or in this case new challenges and responsibilities. One hopes that our politicians and bankers who seem gleefully ready to embark on philantrophy with other peoples money, soberly remind themselves of this sublime fact before entering into what could often pass as a shell game.

John J. Metzler is a U.N. correspondent covering diplomatic and defense issues who writes weekly for World Tribune.com.