Russia grapples with huge debt notes left by Soviet empire during Cold War

September 22, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- Fidel Castro is refusing to repay Russia the $28 billion lent to Cuba by the former Soviet Union to help the island along as an enduring thorn in the side of the United States.

"They don't even want to discuss it. We don't know what to do," lamented Petr O. Aven, Russia's minister of foreign economic relations.

"We are trying to receive something, [but] I am not very optimistic," said Mr. Aven. "They sent a letter saying they are not in a position to discuss it -- ever."

Cuba's isn't the only bad Soviet debt the Russians are stuck with from the international export of communism.

Altogether the Soviet Union lent $142 billion to former client-states, according to Mr. Aven, who is here for the annual meeting of the World Bank and the International Monetary Fund to try to reschedule repayment of Russia's debts to 19 major international creditors, including the United States.

There's $10 billion due from Iraq, and lesser amounts owed by many smaller countries the former Soviet empire considered worth keeping financially afloat and ideologically friendly.

"It will be very difficult to squeeze out something," Mr. Aven forlornly told reporters "You try to receive something from Angola or Zambia."

To make matters worse, Russia is also having a hard time collecting any cash from its fellow former Soviet republics.

Ukraine, second richest of the republics and responsible for about 16 percent of the old Soviet debt, has not paid "a single dollar" toward foreign debt servicing to date, according to Mr. Aven. The smaller ex-Soviet republics received only minimal benefit, if that, from the money the Soviet Union borrowed, so they are not too willing to repay it.

Mr. Aven was more optimistic about India anteing up the more than $10 billion it still owes: "India was a very good payer, always. I am sure that with India we shall find a solution. There are some problems around how to calculate [the size of] the debt, but with India we are optimistic."

With output dropping, unemployment increasing and inflation eroding any residual economic strength, the cash-pressed Russians would like a delay of up to five years in starting to pay off the old Soviet debt and would like their annual repayments to be less than $2.5 billion.

"What we would like to do is to sign an agreement which we definitely will fulfill," said Mr. Aven, displaying the sort of good-faith effort at discharging its debt evidently so lacking in the Cuban leader.

Mr. Aven predicted that agreement on a new repayment schedule for Russia's debts could come as early as October, adding: "I guess it's in the mutual interest of all parties to find some sort of scheme which will allow us to pay within these limits.

There is widespread understanding among the international finance officials here of Russia's difficulties and a willingness to help. But officials are determined that the degree of aid will be tied tightly to the amount of economic reform and discipline introduced into the former communist state.

The Soviet Union went out of business with overseas debts of $70 billion.

Russia, strongest and richest of the former Soviet republics, is willing to manage eventual repayment of the entire amount, but would like contributions from the other republics -- now all independent states.

Russia is in such financial straits itself that it faces a constant trade-off between accelerating inflation or deepening recession, said Mr. Aven.

If the central bank prints money to help finance new enterprises or keep old ones afloat, it feeds inflation, which is expected to be at 20 percent this month.

In July and August new bank credit reached $500 billion, almost the ceiling for the entire year suggested by the International Monetary Fund.

"This is a very inflationary tendency," admitted Alexei Mozhin, head of the Russian government's liaison team with international financial organizations. "The question is whether we will be able to meet the [IMF] targets."

"Some concessions from our side are inevitable," said Mr. Mozhin.

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