Paris and London lenders' clubs are informal informal international associations. They include a different number of participants, and the degree of their influence is different. Paris and London clubs were formed to restructure the debts of developing countries. Let us consider in more detail how the relationship of the Russian Federation with these associations proceeded.
Features of the activities of the Paris and London Club lenders
These associations have special procedures for the review and restructuring of debts. Differences are present in the internal structure of organizations. The London Club, in fact, is a forum for reviewing the maturity of loans provided by commercial banking institutions not guaranteed by the lender's government. The association has no permanent chairman and secretariat. The procedures, like the organization of the forum itself, are characterized by their free character. The Paris Club of Lenders was formed in 1956. It has 19 participants. Unlike London, the Paris Club is reviewing debt to official lenders. If there is a direct threat of non-payment of a loan, the debtor’s government turns to the French government. An official request is being sent for negotiations with the lender.
Conversation
The Paris Club organizes direct communication of the debtor country and the state that provided the loan. The first is represented by the Minister of Finance or the chairman of the Central Bank. On behalf of the creditor, negotiations are attended by officials from the Ministry of Finance, the Ministry of Foreign Affairs or the Ministry of Economy. Observers are also present. They are representatives of the IBRD, IMF, UNCTAD and regional banking institutions. In the process of negotiations, a set of recommendations is developed. The agreed conditions are recorded in the protocol. This document is only advisory in legal terms. It proposes to representatives of countries between which a financial dispute arose that negotiations and the signing of bilateral agreements on the revision of the terms of repayment of obligations. Despite the fact that the content is in the nature of recommendations, the provisions of the protocol are binding on the parties that have accepted it. In accordance with it, agreements are concluded, which, in turn, have legal force. Decision making, the establishment of conditions is carried out on the basis of consensus. That is, the result of the negotiations should suit both parties.
Soviet Union debt restructuring
It should be noted that relations with the London Club after the Soviet Union ceased to exist were accompanied by a number of problems. The Soviet Union is considered the largest debtor of all countries. In 1991, the first problems arose. Then Moscow refused to pay interest on a loan from the USSR. A council was convened as part of the London Club. It included 13 commercial banking structures to which the Russian Federation was in arrears. The main task was to settle the obligations of the former USSR. In general, the question is quite simple. However, it turned out to be quite difficult to solve. Until the fall of 1997, regular council meetings were held. Once every three months, decisions were made to defer payments and interest for another 3 months. The position of the BPC (Council) was quite tough from the very beginning. It was assumed that Moscow, even with a delay, should pay everything. This position was clearly formulated back in 1993. It must be said that up to this point in Moscow there was no clear idea of the actual size of the obligations of the USSR. It was assumed that the total debt amounted to 80-120 billion dollars. Given the fact that the volume of the gold and foreign exchange fund was about 5 billion dollars, it is clear that repayment was almost impossible.
Start of settlement
The first steps were taken by A. Shokhin in 1994. At that time, he was deputy prime minister in the government. Shokhin was able to agree with Fontz (head of the BPC) on a deferral of 5 years in interest and payment of debt in 10 years. But this measure was seen as temporary. Behind it, a radical re-registration of the main share of obligations and accumulated interest in government bonds of the Russian Federation was supposed. The next step was taken in 1995 by the new Deputy Prime Minister V. Panskov. He agreed on a restructuring for 25 years. After that, Moscow had a choice. She could insist on writing off the bulk of the debt or go for further restructuring. The most preferable, of course, looked the first option. But its adoption was almost impossible due to the tough position of German banks. They accounted for about 53% of the debt. After some hesitation, it was decided to go for further restructuring.
The nuances of cancellation
First of all, such an opportunity is provided only once. In this case, the debtor must pay off the balance according to a rather strict schedule. In addition, the status of new securities into which debt re-registration is carried out corresponds to Eurobonds. For any delay, a cross-default is declared on them. This, accordingly, entails a sharp decline in the rating of the state and its isolation in international financial markets.
Further developments
In August 2009, the government approved the initiative of the Ministry of Finance to resolve the external debt of the USSR. It was assumed that about 34 million dollars would be paid. At the same time, 9 million creditors did not state their claims for debt settlement. Further negotiations with them were not planned. As a result of the steps taken, the Ministry of Finance managed to complete the payment of commercial debt by exchanging $ 405.8 million for Eurobonds, the maturity of which is 2010 and 2030. At the same time, the total number of requirements, according to a press release from the Ministry, exceeded 1, 900.
Paris Club Lenders and Russia
After the collapse of the USSR, it was assumed that the newly formed states would bear their part of the responsibility for the existing external debt. At that time, it amounted to $ 90 billion. Along with debt to each state, a corresponding share in assets was also assumed. However, in practice, it turned out that only Russia could fulfill its obligations. In this regard, by mutual agreement, it was decided that the Russian Federation would accept all the debts of the republics in return for their refusal of the due shares in the assets. This was a rather difficult decision, however, it allowed to maintain the country's position in world markets and helped to strengthen the confidence of potential foreign investors.
Stages of negotiations
The Paris Club and Russia held negotiations in several stages. They began immediately after the official announcement of the termination of the USSR. The first stage has taken count since 1992. Within its framework, the Paris Club of creditors provided short-term three-month deferrals for the repayment of external debt. The same stage includes obtaining a loan from the IMF for $ 1 billion. The second stage was held from 1993 to 1995. The Paris Club agreed to sign the first restructuring agreements with the Russian Federation. Under these treaties, the country assumed all the obligations of the USSR, the maturity of which was from December 1991 to January 1995. The third stage began in April 1996. The Russian Federation and the Paris Club of creditors supplemented their agreements with a comprehensive agreement. In accordance with it, the total debt amounted to about 38 billion dollars. At the same time, 15% of them were supposed to be repaid over the next 25 years, until 2020, and 55%, which included short-term debts, for 21 years. The restructured debt was to be paid in incremental amounts since 2002.
Memorandum
It was signed on September 17, 1997. The Paris Club and the Russian Federation have concluded a Memorandum of Understanding. He designed the country's accession to the association as a full member. Since the signing of the document, debt claims from Russia have the same status as other countries.
Protocol
On June 30, 2006, early repayment of debt was announced. At the time of signing the corresponding protocol, the amount of obligations amounted to 21.6 billion dollars. This debt was restructured in 1996 and 1999. Until 2006, the Russian Federation serviced and repaid obligations. The protocol provided for the payment of part of the debt at face value, and part at market value. At the latest, obligations that had a fixed rate were redeemed. Loans of this type were provided by such members of the Paris Club as the Netherlands, Great Britain, France and Germany. The early repayment premium for these countries amounted to almost $ 1 billion. US debt was paid at par, although America also provided a loan at a fixed rate.
Recent Payments
After the agreements, A. Kudrin announced that Vnesheconombank would close its debt until August 21. It was on this date that the Paris Club received interest payments from the Russian Federation. The head of the Ministry of Finance fulfilled his promise. In the middle of the day on August 21, information appeared on the bank’s official page that the last transfers were made to the accounts of the lenders. Thus, the planned payments amounted to 1.27 billion dollars, 22.47 billion were directed towards early payment. Australia was one of the first countries to replenish its accounts. Mark Vale (vice-premier of the state) said then that early repayment indicates the strengthening of the Russian economy and acts as a key element in bilateral relations. Prior to the signing of the June agreements, the Russian Federation was considered the largest debtor.
Since the collapse of the USSR, the Paris Club has focused its work on reaching agreements with Moscow. After paying off all the debt, many experts began to talk about the advisability of the further functioning of this association. In addition to the Russian Federation, countries such as Peru and Algeria repay their obligations ahead of schedule. Some time ago, the Paris Club did not anticipate that these states could not just pay debts, but do it ahead of schedule. Vnesheconombank's payments were made in nine currencies. To transfer funds, the Ministry of Finance previously exchanged 600 billion rubles in euros and dollars. The main payments were in these currencies. After the full repayment of debts, Russia became a full member of the Paris Club.
Summary
Despite the problems that accompanied the interaction of Russia with the Paris and London clubs, the Russian Federation managed to get rid of its previous debts. From the very beginning of their existence, these associations act as the most important link between the countries providing and accepting monetary obligations. They seek to alleviate the burden of states directly servicing their debts. At the same time, their goal is to maintain the solvency of the borrower in the long term. The Russian Federation seeks a comprehensive approach to solving the problems of international debt, taking into account the interests of all parties. The debt crisis that arose in the 90s was the result of an unfavorable combination of subjective and objective circumstances. Nevertheless, the Russian Federation managed to show its viability and ability not only to accept, but also to fulfill international obligations. Early payments not only avoided arrears and delayed payments, but also ensured Russia full participation in the Paris Club.
