Russia expects to begin receiving E.U. food aid in January

Web posted November 13, 1998

By Greg Myre
Associated Press

MOSCOW -- Russia plans to seek a second restructuring of its Soviet-era foreign debt, the deputy finance minister says, a move likely to further undermine the government's sullied reputation among foreign creditors.

Russia inherited about $260 billion in Soviet debt, much of it from loans to developing countries that defaulted.

Under a 1996 restructuring agreement, Russia was granted a grace period through 2002, during which it only has to make debt service payments. But even that is proving too much.

Deputy Finance Minister Mikhail Kasyanov said in an interview published Thursday that Russia would be asking creditors for some ``breathing space on the payments of the debt in the next year or two.''

The Soviet-debt payments are part of the $17.5 billion in foreign debt that Russia was to pay creditors next year. The government previously indicated it wants to reschedule the payments.

Foreign lenders expected the government to try to pay off the newer, Russian debt first, and Kasyanov's announcement, in an interview with the business daily Kommersant, confirmed the speculations.

Kasyanov did not rule out the possibility that the government would also want to reschedule the Russian debt. Russia has built up $50 billion in foreign debt as well as inheriting about $100 billion in debt since the Soviet collapse, Kasyanov said.

Also Thursday, Russia was on the verge of signing a food aid deal with the European Union that would start providing wheat, rice, beef and pork in early January. Russia signed a similar agreement with the United States last week.

The country has not experienced any serious food shortages so far, but the government wants to ensure its stockpiles last until spring.

In a new sign of trouble for the Russian banks, Central Bank Chairman Viktor Gerashchenko said the government won't bail out domestic banks whose overseas assets are frozen by foreign creditors.

A government-declared moratorium on debt payments that had protected Russian banks is due to expire within days.

Central Bank's deputy chairman Andrei Kozlov said that more than 700 Russian commercial banks will fail, because the government does not have the $5 billion to save them.

The banks hold 32 percent of all private deposits in the country, the Interfax news agency reported. Many private bank accounts have been frozen since Russia devalued the ruble and froze some of its domestic debt in August.