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Why Russia forgives debts

May 22, 2014, 15:57 UTC+3 Alexandrova Lyudmila
© ITAR-TASS Archive

MOSCOW, May 22. /ITAR-TASS/. Russia has forgiven almost all liabilities of the former Soviet Union’s debtors and continues to write off the remaining ones. Analysts wonder if such generosity is politically or economically beneficial. “We would not have anything paid back anyway,” experts often say. Besides, many believe this policy can yield political and economic dividends.

Russia has written off Africa’s more than $20-billion debt, Russian Foreign Minister Sergei Lavrov writes in an article for the Russian View magazine. “Debt- for-development swaps” totaling $552 million have been signed with a number of African countries letting them use their debts to Russia to finance their development projects.

In April, Lavrov announced that an agreement on restructuring Cuba’s $32-billion-debt approached ratification: 90% is to be written off, while the rest will be allocated for development purposes within the country.

Over the last 13 years, Russia has generously written off and restructured multi-billion dollar debts of Vietnam, Iraq, Algeria, Mongolia, Afghanistan, Libya, North Korea and Kyrgyzstan — a total of more than $120 billion. Last year, Russia was the leader in the G8 group by the number of “forgiven” debts.

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“In fact, Russia has forgiven everything to all debtors of the Soviet Union,” said Professor Boris Heifetz, of the Institute of Economics of the Russian Academy of Sciences. “The total debt of Western countries to Russia was estimated at $145 billion recalculated on the basis of the dollar exchange rate of the State Bank of the USSR (0.66 rubles). We had been trying to restructure it until 1997, yet mostly without success.”

The expert said it was counterproductive to idly wait until things get better and countries in debt leave the vicious circle of non-payers, as currencies were devaluating all over the world. Besides, experience shows that debtors’ financial conditions only deteriorate with time.

“We would have had the money back long ago, had that been possible,” a lecturer at the Institute of Natural Monopolies, Vladislav Ginko, told ITAR-TASS. “Besides, this is a global trend — economically stronger countries write off debts of the weaker ones. On the one hand, we get political support of these countries, for instance in the UN. On the other hand, it helps negotiate military cooperation.”

This also bolsters the country’s financial image — if a country can afford to write off debts, apparently, it has no financial problems.

“As a rule, we write off loans,” the editor-in-chief of the Russia in Global Affairs magazine, Fyodor Lukyanov told the Novyie Izvestia daily. “The countries that usually borrowed money for buying military hardware will hardly pay back. If we demand our money, we’ll lose ties with these countries, and others will take over.”

The director-general of the National Energy Security Fund, Konstantin Simonov, has pointed out that Russia usually forgave debts and provided lending in exchange for joint oil and gas projects and weapon supply contracts. In 2011, Russia allotted Venezuela a loan for Russian weapon purchases. The same scheme was applied in Indonesia, Sri Lanka and Jordan.

The director of the RAS Institute of Economics, Ruslan Grinberg, finds Russia’s present debt policy the only correct option. Forgiving multi-billion-dollar debts is “a gesture of good will” — a normal reaction by a sane country.