Republics' Cash Reserves Run Dry
THE hard currency coffers of the former Soviet republics are essentially empty, a senior Russian official revealed here, making it practically necessary to postpone payments on the massive foreign debt of the former Soviet Union.
"The level of reserves is zero," said Pyotr Aven, chairman of the Russian Committee on Foreign Economic Relations.
On Tuesday officials from the Vneshekonombank, the former Soviet Bank for Foreign Economic Affairs which is jointly responsible for repaying the Soviet debt, met with representatives of Western banks in Frankfurt. Mr. Aven denied reports that they would seek a moratorium on interest payments on their debt, on top of the agreement already reached last December to delay repayment of the principal.
But, the senior official added, "there will be some delays on some interest payments in the next several weeks." In the meantime, he said, "we want the West to avoid any decisive actions."
Mr. Aven, one of the small group of young economists who are masterminding the radical Russian reform policies, cited two basic reasons behind what he called "an extremely sharp liquidity crisis." The first is the refusal of the other former Soviet republics to honor an agreement to collectively pay off the debt. Russia is now providing 85 percent of the Vneshekonombank's hard currency revenues, though under the agreement it is responsible for only 61 percent of the debt.
The second factor is massive capital flight out of the country and out of the bank that had previously held a monopoly over all foreign currency dealings in the Soviet Union. Both Soviet enterprises that earned hard currencies from exports and foreign firms doing business here were previously compelled to keep their accounts in that bank.
But now some 200 banks here have the right to deal in foreign currencies and enterprises are opening accounts overseas. Russian enterprises are moving their money rapidly out of the bank because their deposits are being used to service the former Soviet debt, Aven acknowledged. He says that $5.4 billion was taken to pay the debt from accounts of Soviet enterprises.
Nor are such measures confined to Russia. According to Reuters, the government of Belarus on Tuesday announced the "temporary confiscation" of 50 percent of the hard currency bank accounts of their republic's enterprises to pay for grain imports. The government promised to eventually return the money.
AVEN said the Russian government will repay the enterprises, but it could be in the form of state bonds or shares in a new bank to be created out of the division of the Vneshekonombank into several parts - one to continue managing the debt, another to be taken over by the Russian Bank for Foreign Trade, and a new commercial bank.
The government hopes to replenish its reserves by implementing a new system of taxes on earnings, replacing a more onerous policy followed by the former Soviet government. Under the new plan, raw materials exporters must sell 40 percent of their hard currency to the government for rubles at a rate which is half of the market rate. This covers oil, gas, and mineral exports that make up about 70 percent of Russia's exports. All the rest, including machinery exporters, will have to sell only 10 percent of h ard currency revenues, and at full market rates.
Judging from past behavior, however, many Russian enterprises will try to evade such forced sales by keeping or sending their money overseas. At least $6 billion left the country during the past year in illegal capital flight, Aven said. Under new regulations, the government insists that all hard currency revenues must come back to the country within two to three months. A new agency is to be created to control those flows, Aven said.
Ultimately the best hope for stopping capital flight and ensuring that Russia and the other republics can repay the estimated $70 billion Soviet debt is the success of the current reform policies. Raging inflation following price liberalization at the start of this year makes holding the ruble an unattractive position. The government hopes its budget austerity and free-market policies will help to restore value to the ruble.
"If you stabilize, money will come back," Aven said.