Russian Goodwill in Action: Russia writes off 90% of North Korean’s $11bn debt
by Lady Michelle-Jennifer Santos, Founder & Publisher
September 18, 2012 (TSR) – Russia cancelled 90 % of the 11-billion-U.S.-dollar debt owed by the Democratic People’s Republic of Korea (DPRK) to the former Soviet Union, Russian Finance Ministry said Tuesday.
An agreement on the restructuring of the debt was signed on Monday in Moscow, according to deputy finance minister Sergei Storchak.
DPRK owed former Soviet Union 11 billion dollars since the 1950s. Russia claims to be a legal successor of the Soviet Union which has built 70 plants and factories in DPRK and supplied the country with energy on subsidized prices.
Russia and North Korea have been negotiating over the issue of Pyongyang’s debt to Russia, left over from the Soviet era, for the last four years without result. Russia did not rule out writing off part of the debt and either rescheduling the remainder or offsetting it against investment.
Storchak previously said it was understood a debt settlement would involve a conversion of the ruble debt into dollars, giving an initial discount of around 90 percent of the debt.
The remaining debt of over $1 billion would be used in a “debt for aid exchange” plan to assist with joint education, health and energy projects in North Korea.
Under the newly-reached agreement, Russia decided to write off 90 percent of the debt and offered to restructure the remaining part.
The remaining debt would be included into a “debt for assistance” exchange scheme as investment to be injected into Russia-DPRK joint projects in humanitarian areas and energy sector, said the ministry.
Russian official say that debts hamper the development of commercial and economic ties between countries. One may have an official approach to this problem. The debt and the pressure from a creditor may only boost the development of those ties. Many developing states are rich with natural resources, so they could successfully repay their debts with those resources. If they could not, then they would have to repay their debt plus interest to Russia, as international laws stipulate.
But Russia chooses to take the high road.
Last year, Russia’s was given agreement to lease 200,000 hectares of land to North Korea in the Amur region for the price of 50 rubles ($2) per hectare. Under the agreement, Russia is also deliver the humanitarian aid of 50,000 tons of wheat to Pyongyang in August-September 2011 and was spending $13.35 million on the humanitarian aid to the late Kim Jong-il. Everyone can look at this and say that Russia could use this to gain access to North Korean non-ferrous metals. However, there is nothing to prove that Russia is going to receive anything in return.
Bottom line, President Vladimir Putin is just adamant to start off with clean slate with everyone. He is building Russia now and it is the 21st Century. He prefers to turn a page, and hopes everyone does the same. This is why he cannot understand the Cold War mentality by Americans.
Russia forgives billions to other countries
Foreign countries owe $68.968 billion to Russia as of January 1, 2006. A big part of this amount has already been written off. Russia forgave the following debts during the recent eleven years.
Let us do a run down.
Vietnam and Ethiopia – $10 and $4 billion in 2010. Laos and Mongolia – $0.7 and $11 billion in 2003. Syria and Ethiopia – $10 and $1 billion in 2005. Algeria – $4.7 billion in 2006. Afghanistan – $11 billion in 2007. Libya – $4.5 billion in 2008. Iraq – $8 billion in 2009. And finally, 90% off for North Korea on their $11 billion.
This totals $76 billion. The same may happen to Cuba’s debt of $19.5 billion.
Appendix 59 to Budget-2007 said that the Russian government was entitled to write off the debts to 13 poorest countries (Guyana in Latin America and 12 African countries – Congo, Ethiopia, Guinea, Guinea-Bisau, Mozambique, Zambia, Madagascar, Tanzania, Benin, San Tome and Principle Island, Burundi and Chad) which made up the total of nearly one billion dollars.
Russia can afford to forgive indiscriminately.
Russia is so rich that today, they have no deficit and expect surplus soon, unlike the EU and USA, who are drowning in debt. Putin is never known in personal circles as excessive, but in fact, quite humble. Greed is not in his veins. He knows where he came from. This humility and sincerity is paying off and blessing Russians.
Indeed, many of those indebted countries Russia forgave are rich with natural resources such as oil, uranium, copper, etc. So what’s in it for Russia from such countries as Iraq in return? A handful of highly unprofitable offers and that was it. The fact is, Russia received no good contracts for those resources instead. Of course, this may only lead to negative consequences for Russia because the country suffers considerable financial losses.
RUSSIAN GOODWILL IN ACTION HIGHLIGHTS
In February 2009 the Russian government pledged to write off Kyrgyzstan’s $180 million debt as well as promising to lend a further $2 billion, give $150 million in direct aid and subsidise the building of the Kambarata-1 hydropower plant at the Kambaratinsk Dam.
The document to be signed will cover commitments on a September 5, 2005 agreement between the two governments on settling Kyrgyzstan’s debt to Russia on loans issued earlier in an amount of 189 million U.S. dollars, and a February 3, 2009 intergovernmental agreement for 300 million U.S. dollars, Interfax quoted a Kyrgyz participant in the negotiations as saying.
The parties concluded at negotiations on August 14 to 15 that the agreement between the Kyrgyz and Russian governments on repaying part of the debt in material form and canceling the rest of the debt dated February 3, 2009, had never taken effect, he said.
At the same time, the parties agreed at the talks that they would sign “a new intergovernmental agreement between Kyrgyzstan and Russia on canceling Kyrgyzstan’s state debt to Russia by mid- October 2012.”
Libyan Arab Jamahiriya
During Putin’s first visit to Libya on April 16-17, 2008, an intergovernmental agreement on trade, economic and financial relations was signed between Russia and Libya providing for the settlement of Libya’s $4.5 billion debt. Putin wrote it off 100% provided that the Libyan side reinvest its debt in return for Russian goods and services.
In 2007, Russia has also canceled 90% of Afghanistan’s debt. More than $11 billion in Afghanistan’s sovereign debt over the past decade as announced by Foreign Minister Sergey Lavrov on December 5, 2011.
In May of this year, the final US$280,000 (GUY$55-million) of a debt owed by Guyana to Russia dating back to when Russia was part of the former Soviet Union was cancelled. This gesture of debt forgiveness was announced by Russia’s Ambassador to Guyana, Nikolay Smirnov, as he addressed the Business Luncheon of the Guyana Manufacturing and Services Association (GMSA).
Russia had already cancelled GUY$16.3-million of the debt that the Caribbean nation had owed the former Soviet Union, which Russia inherited when the former eastern European bloc broke up into the Commonwealth of Independent States. Smirnov said Russia was preparing to wipe off the remainder of Guyana’s debt and also help the CARICOM nation combat drug trafficking.
In 2008, Russia cancelled 93 percent of Iraq’s debt following a major trade agreement.
The agreement wipes out $12 billion out of $12.9 billion that Iraq owed Russia and comes on the heels of an agreement, signed earlier in the day, spelling out cooperation in trade, science and technology, the RIA Novosti reported.
Russia cancelled USD 500 million of Zambia’s external debt to enable the government to free budgetary resources for developmental programs.
Zambia’s external debt to various creditors stands at about USD 1.2 billion which according to government is sustainable. According to data, Zambia’s current external debt hovers around USD 1.2 billion to USD 1.5 billion. The country’s debt in 2005 stood at USD 500 million after Zambia’s USD 7 billion was forgiven following the attainment of the Highly Indebted Poor Countries completion point.
In August 2001, Russia forgave 80% of Guinea-Bissau’s debt, which was reported to be valued at US$ 178 million according to RDP Africa.
Russia cancelled 70% of Cambodia’s $1.5 billion debt owed to Moscow since the 1980s. During the 1980s, Cambodia was a close Russian ally and relied heavily on Moscow for weapons, food and infrastructure equipment.
Cambodia is one of the world’s poorest countries and is heavily reliant on foreign aid.
Cambodia also owes the US government over $300 million which most of it was borrowed in the 1970s. The country has asked the US government many times to reduce the debt or cancel it, but there has been no response from Washington.
Moscow has been in the process of cancelling debts of 16 African nations since 2006.
THE WEST AND THE RUSSIAN ECONOMY TODAY
Russia’s public debt as of January 1, 2005 totaled $53.909 billion. The debt had been reduced to $30.806 billion by January 1, 2006.
Russia has completely repaid the debt of $185.7 million to Europe’s largest creditor – Croatia. Moscow is expected to fully repay its debt to the countries of former Yugoslavia (Serbia, Montenegro, Macedonia, Bosnia and Herzegovina) before 2016.
The debt to the countries of the Council for Mutual Economic Assistance dropped from $2.6926 to $2.106 billion during that time. The list included Russia’s debt to the Czech Republic in the amount of $100 million, which was fully repaid in 2007, and the debt to Romania – $200 million.
As of May 1, 2011, Russia’s foreign debt was calculated at $38.832.8 billion. The lion’s share of this amount (29.82 billion) is the debt on European bonds. Russia continues to borrow funds during the times of the ongoing crisis, but interestingly enough, no one is forgives Russia’s debts.
Russia, oddly enough, does not get much love and compassion from the West (yet these days, Eurozone countries go and beg Russia to assist.)
Historically, the Soviet Union left a huge debt after its collapse. Russia became the only country to inherit not only the foreign property of the former USSR, but all of its foreign debts as well. It was extremely hard for Russia to serve the debt because the economy was declining steadily in the beginning of the 1990s. The Soviet debt had been restructured four times before the default of 1998. By 1999 Russia managed to either write off or delay the payments to private creditors (the London Club, for instance). However, such a compromise proved to be impossible with the Paris Club of Creditors.
France was waiting for a hundred years for the debts of tsarist Russia to be repaid. Why couldn’t Paris just write those debts off during the Soviet era? The French strongly refused to forgive the tsarist debt. The legal entity in the face of tsarist Russia, which borrowed money from France, stopped its existence. The USSR, which replaced tsarist Russia, refused to even say a word about it. The French could have written off the debt after the collapse of the Soviet Union. However, Russia fully repaid the tsarist debt to France.
Another prime example right now is the issue with Gazprom. EU won’t do dialogue. But that is another issue.
Russia does not owe a cent to the countries of the Paris Club of Creditors and they cleared the debt ahead of schedule. The final payment to the Club, which Russia made on August 21, 2006, has earned the country a reputation of an honest borrower .
The debt of 45 billion dollars, the burden of which Russia had to carry after the collapse of the Soviet Union, has been paid off completely was done in nine different curries according to Vnesheconombank.
In 2005, Russia repaid $15bn to the Paris Club – whose members include the United States, United Kingdom, France and Japan – using revenues from oil sales. Therefore, Russia is no longer a debtor of the Paris Club and now positioned to become a crediting country within the framework of the Club.
World prices on oil literally saved Russia from another financial catastrophe. Oil prices have been rising very fast since the beginning of the new century, which gave Russia an opportunity to complete major payments ($17 billion) to the Paris Club in 2003. As a result, Russia has become one of the most solvent countries of the world.
The debt to the Paris Club was the largest, politically relevant and most complicated category of the country’s foreign debt. Financial analysts say that non-market debts similar to the Paris Club debt is more typical of third world countries, whereas Russia positions itself as a member of the Group of Eight (G8). In other words, Russia is supposed to act as a creditor for poor countries.
It is worthy of note that Russia also cleared its debt to the International Monetary Fund in 2005 too – $3.3 billion. The agreement on the second tranche was achieved on June 16 in Paris. The conditions were different, though. The creditors insisted on a one-billion-dollar bonus, which was also meant to partially compensate financial losses of the ineffective interest payments. The extra payment of one billion dollars pales in comparison with the amount which Russia saves as it pays off the debt ahead of schedule. Literally, the Russian federal budget saved over $12 billion on interest payments to the Paris Club of Creditors till 2020.
President Putin sums up how the Russian economy looks like at his interview:
We requested the parliament to assign 200 bln rubles as a government reserve fund – and the parliament agreed.Therefore, we are generally equipped for managing a crisis. On top of that, as you know, we have enjoyed fairly strong economic growth, with a growth rate of 4.2 percent, which is the highest rate among the world’s largest economies next to China and India. The Eurozone’s average growth rate has been 3.9 percent, while ours was 4.2. We have reinforced our gold and currency reserves, almost bringing them back up to pre-crisis levels. With upwards of $500 bln in gold and currency reserves, we presently rate third worldwide next to China and Japan. In parallel to that, the government is rebuilding its own reserves. We have two government reserve funds: the $80-billion National Welfare Fund, and the Reserve Fund with roughly $60 bln, which serves to finance a budget deficit, should we suffer one. But so far, we don’t have a deficit: our next year’s budget registers a surplus, slight as it may be. Our unemployment rates are the lowest possible.
Is it any wonder why United States and European countries drowning in debt villify and provoke Russia with China with various destabilizations and attempts for forced regime change?
Russia is a powerhouse with China, and the world is soon to behold their greatness. We look forward to them leading this time, as both nations and its leaders have been working hard behind the scenes to promote balance of power and most importantly, world peace.