It’s Not Just Russia’s Fault

MOSCOW: Today, many people see Russia as undeserving of Western help, due to the chaos, corruption and defaults of the Yeltsin years, but also because of concerns about authoritarianism and human rights abuses under President Putin. Russia is also thought to no longer need help because its economy and public finances are much improved, thanks to rising oil prices and a GDP growing at 6.5% per annum. Indeed, Russia is running fiscal and current account surpluses of 2% and 17% of GDP respectively. Despite being up to its neck in debt - its obligations equal 75% of GDP - Russia appears able to pay its creditors.

But Russia is seeking further relief from the so-called "Paris Club" (made up of western governments) on nearly $40 billion of inherited Soviet debt to those governments. Prime Minister Mikhail Kasyanov, indeed, journeys to Berlin next week in search of support for an interim deal now under negotiation. Russia's case for relief is strong. Even stronger is the case for Western governments - above all, Germany, which holds nearly half Russia's Paris Club debt – to ask taxpayers to forgo part of these claims.

Loans from western governments to the Soviet Union are at issue. Soviet central planning could not secure a proper return on those loans - and indeed on all investment, which was a primary reason for the USSR’s collapse. Paris Club loans were made by government export credit agencies, which underwrite foreign purchases of their countries’ capital goods and other products. As the OECD never tires of pointing out, this is a form of government subsidy to domestic industry more than to the recipient country.

Debt relief is being raised simultaneously with a growing debate about “Who lost Russia?”in western capitals. Whom do I think responsible? Western governments acting as the Paris Club in the autumn of 1991 must share the blame.