Soviet Borrower to Delay Repayment of Principal
LONDON -- The rapidly disintegrating Soviet Union moved Wednesday to suspend payment of debt principal to Western commercial bank lenders.
In telex messages to its main creditor banks, Vneshekonombank, the Soviet foreign trade bank, said it was setting a debt deferral, effective today, due to its liquidity problems.
Soviets owe foreign banks an estimated net $20 billion, out of a total foreign debt of some $68 billion, according to industry analysts. European institutions are the most exposed, while U.S. banks are less vulnerable due to a more conservative lending policy toward the Soviet Union.
The deferral throws into question Moscow's future creditworthiness and may affect the supply of Western loans and assistance for the vital process of market reform, bankers said.
One-Year Suspension Expected
An official at Moscow Narodny Bank Ltd., the British commercial banking arm of Vneshekonombank, called the suspension "totally consistent with the [Group of Seven industrialized nations'] appeal for equal treatment" on debt from commercial banks.
The G7 agreed with Moscow last month to suspend principal payments on intergovernmental debt. They requested banks to match this suspension, in an accord that did not affect normal servicing of interest on debt.
Vneshekonombank declined to state the duration of its deferral. But bankers assume it would be for the same one-year period set for governmental debt.
German banks have been the biggest lenders to the Soviet Union, with gross exposure at an estimated $23 billion. This number includes traditional bank loans, export credits guaranteed by the German government, and other official debt.
Germany Not Surprised
"It's not a shock for German banking, although we are obviously moving to provision for our Soviet exposures," said Peter Pietsch, an economist at Commerzbank AG in Frankfurt.
Italian, French, and British banks have the next-highest exposures. U.S. banking has a slim $500 million in Soviet loans, industry estimates suggest.
Vneshekonombank's telex message to creditors said deferral of principal is on all debt contracted before Jan. 1, 1991.
"The Soviet Union and its successors are facing a critical situation in the economic and political field," it explained.
European bankers indicated privately their resignation to deferral as a potential prelude to full rescheduling of Soviet foreign obligations. These moves, they say, reflect political and economic upheavals as republics break away from the Soviet center.
Deutsche Bank, AG, Germany's biggest, is to form a steering committee of bank creditors to review the debt position with Vneshekonombank.
"I can imagine that these talks could result in some form of rescheduling or managed assistance for the Soviet debt position," Commerzbank's Mr. Pietsch said.
Important for commercial banks, according to Mr. Pietsch, is maintainance of a central institution, like Veneshekonombank, to coordinate debt and banking issues as various republics split from Moscow.
"One of the wishes of [Western] banks is that one institution coordinates negotiations on behalf of the various central banks of the republics," he said.