© THE MOSCOW TIMES, MAY 28, 1995
Up Need does not russia to Increase Burden of ITS States Foreign debt, “wrote one’s major l. Russian paper recently. “It is in a position to cope with its problems by itself.” This is a view which has become increasingly common in recent months, and it is worth pausing to consider its merits.But doing so means sorting out Russia’s complex foreign-debt situation.
The rapid growth of Russia’s foreign debt is an alarming fact. According to official sources, Russia’s foreign debt stood at $ 32billion in 1986, rising to $ 52billion in 1989, $ 58billion in 1991, $ 68.6billion in 1992and $ 83.7billion in 1993. By the beginning of 1995, foreign debt had risen to $ 113 billion and that figure is expected to reach $ 130billion by the end of the year. Critics have argued that Russia would not really need foreign aid – or at least not so much of it – if the government were pursuing a more effective economic policy.
The main reasons given for Russia’s dependence on foreign loans are as follows. First, Russia’s economic ties with the other countries of the CIS are extremely taxing on the Russian economy. Second, the government has not been able to get developing countries that owe Russia to make payments on their debts. Third, the economy has been crippled by the enormous illegal export of capital from Russia. All of these factors are, experts say, bleeding the Russian economy dry and forcing it to turn to infusions of foreign aid.
It will be recalled that when the Soviet Union collapsed in 1991, half of its foreign debt passed to Russia and the rest was divided among the other republics. Russia later voluntarily assumed all the debts of the former Soviet Union, lifting a significant burden of debt from its fragile neighbors.
In addition, many of these countries, especially Ukraine, Belarus, and Kazakhstan, have continued to take delivery of Russian raw materials and energy products at prices well below world market levels. What is more, they often fail to make payments even at these cut-rate prices. In short, Russia has continued to subsidize all these countries throughout their years of independence. Some experts estimate that, in fact, these policies have amounted to a gift from Russia to these countries of between
$ 40 Billion to $ 45 billion a year for the period from 1992 to 1994.
It should be noted, though, that some analysts feel these figures are inflated and the official data is far from clear on this question. At official negotiations between Russia and Ukraine, the latter’s debt was established at just $ 2.5 billion. If the same methods of calculation are used, then Belarus’s debt is only $ 500 million.
In reality, the actual figures of CIS debt to Russia must lie somewhere between these extremes. One way of estimating more exactly is to look at the data available from the former Soviet Union. This information, which President Boris Yeltsin frequently cited in his campaigns against former Soviet President Mikhail Gorbachev, reports that the Russian Federation subsidized the other Soviet republics in the amount of $ 12 to $ 15 billion annually.
Even if we proceed from these moderate figures, it becomes clear that between 1992 and.1994, Russia spent an amount in aid to CIS nations comparable to the amount by which its foreign indebtedness grew during this period. Russia, naturally, has already approached Western donors to ask them to provide directed assistance to Ukraine and other countries to enable them to purchase oil and other raw materials from Russia. There is no reason why Russia should be saddling itself with foreign debt in order to subsidize its neighbors, and Moscow must insist that Western donors and international financial organizations take immediate measures to work out this issue.
Russia has also had significant failures concerning its financial relations with a number of developing countries. The total debt
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saddling itself with
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of countries such as Cuba, Mongolia, India and Iraq was nearly $ 90 billion in 1992 and is now valued at from $ 140 to $ 150 billion.
The Russian government has been rightly criticized for failing to control this situation, but the fact is that most of these countries are not in a position to pay off their debts. Most of them are undergoing their own economic crises, and others-notably Iraq – are unable to raise money due to international economic sanctions. Russia has, of course, worked to have the sanctions against Iraq eased and the embargo against Cuba lifted, but its has received no cooperation from the West. In these two cases at least, Russia is indirectly financing the West’s pursuit of its own political ends.
There remains the question of illegal capital flight. Many analysts feel that if this drain could be halted, the increased capital available for domestic investment would do much to reduce Russians dependence on foreign aid. The economic crimes department of the Russian Interior Ministry estimates the value of capital leaving Russia in 1994 at about $ 50 billion.It also says that the problem increases by about $ 1.5 billion to $ 2 billion monthly.
Ending this drain is not a matter for draconian measures that will straightjacket the economy. It is, on the contrary, a sign that the government must undertake the complex and difficult work of completely reforming Russia’s tax code and tax collection methods. In addition, Russia must develop methods of coordinating action with foreign countries in order to monitor criminal activities and prosecute those responsible.
A rational approach to the matters discussed above clearly indicates that one can not simply directly substitute money from these sources for foreign aid. It is, as I hast tried to show, not just a domestic matter but one which requires the goodwill and serious attention of many countries.However, the bottom line is that international cooperation, stimulated by the insistence of the Russian government, is capable of doing much to break Russia’s dependence on crippling foreign loans.
Ilya Mogilyovkin is a professor at
tute of World Economy and Iniernaiiaw
Relations.