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Finance Minister Global & Europe

Alexei Kudrin, Finance Minister, Russia
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Russia could repay up to $10bn in foreign debt owed to Paris Club lenders next year if finance minister Alexei Kudrin gets his way. The payment would be skimmed off the growing balance of the oil stabilisation fund and assumes that oil prices would remain above baseline estimates for the 2005 budget of $28 per barrel. Russia owes the Paris Club group of sovereign lenders $48bn.

Although contingent on external factors, the move would be significant for several reasons. It would forestall sales of Russian debt by other governments. Germany repackaged $5bn of Russian debt for resale, tantamount to new Russian issuance, and effectively removed control of debt management from Russian authorities. The German transaction put Russian bond prices under pressure, increasing borrowing costs for Russian companies. Conversely, if Russia was to make the repayment to creditors, yields on Russian debt would fall.

Analysts have welcomed the move, arguing that allocating surplus funds to debt repayment would eliminate the temptation to spend it on recurrent expenditure.

The debt repayment plan is in itself not the reason why The Banker has selected Alexei Kudrin as Global Finance Minister of the Year; rather, the award recognises Mr Kudrin’s firm hand in maintaining the fiscal prudence and control over spending that has permitted this move. Admittedly, a soaring oil price has helped but it is Mr Kudrin who has steadfastly stashed surplus revenues into the stabilisation fund, which could reach $20bn by the end of 2004. In turn, by saving the windfall, rather than spending it, he has avoided over-heating and the inevitable loss of competitiveness in the economy.

According to Mr Kudrin, each $10bn in debt repayment frees up $700m in revenue that would otherwise be allocated to debt servicing. “Everyone still remembers the year 1998, when Russia failed to meet either its budget targets – they were not met – or its foreign obligations. As a result of the rouble devaluation and a rise in inflation, living standards of the citizens went down substantially. Our budget and tax policy and the creation of the stabilisation fund must prevent these kinds of risks forever,” he recently told the Russian parliament.

Despite recent signals indicating a modest slowdown in the growth of the Russian economy, no-one disputes that the country has moved on considerably from the financial crisis of 1998, when it defaulted on its debt repayments.

Russia needs to diversify away from its dependence on oil to sustain growth in the absence of high oil prices – but there is a reform plan. Mr Kudrin’s success has been to convince creditors and investors that Russia is a responsible and compliant debtor – a crucial first step to building long-term confidence.

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