Many people resent the fact that Russia is writing off debts to other countries. Why show generosity, taking care of other nations while the needs of your own people are not being met? Let’s get to the bottom of this.
Debt restructuring
The practice of debt forgiveness does not exist only in Russia, but is widespread throughout the world. Many Western countries are also engaged in this practice.
For example, there is such an organization – the Paris Club, which includes 21 major countries of the world (including Russia).
Sometimes getting debt from a government that has no money is difficult. Unlike individuals and companies, states cannot be declared bankrupt. The reason is that the state has sovereignty – other countries cannot take part of its territories in order to sell property to pay the debt, because this is forbidden by international laws. And the only way out in this case is debt restructuring.
Debt restructuring is a revision of the terms of the debt. For example:
- Changing the timing of debt repayment
- Debt relief
- Exchange of debt for the transfer of the right to develop deposits or for a block of shares in enterprises owned by the state. In this case, the debtor country and the creditor country become co-owners of these enterprises.
To whom Russia writes off debts
It is worth understanding that there is a difference between “loaning” and “forgiving debt. In the case of Russia, this is really a big difference. Because almost all of the debts that Russia forgives are debts not to modern Russia, but to the USSR. Russia is the legal successor of the USSR, and it received, among other things, the debts of other countries to the USSR.
This is an important nuance. Because if Russia were to give in debt, then it would be like taking money from its own people and giving it to others. But by forgiving debts, no Russian loses money.
But still, why forgive the debt and lose the opportunity to get more money in the future?
Debts are usually forgiven to insolvent countries, third world countries. These countries have been unable to pay their debts for decades, and they will be just as physically unable to pay them back in the coming decades.
But better late than never. Why not just wait until at least some of these countries are on their feet and pay back the debt, even if it takes 50 years?
In fact, debt forgiveness is not really an act of charity. Because debts are not written off for nothing.
For example, by writing off $11 billion in debt to North Korea, Russia had an opportunity:
- to extract minerals on the territory of North Korea
- take part in the repair of railroads, thanks to which Russia can earn
- to lay a gas pipeline to South Korea through North Korean territory.
Another example is Guinea. After writing off the debt in 2002, Russia received the right to develop the largest deposit of bauxite minerals, from which aluminum is extracted. Guinea has two-thirds of the world’s reserves of these minerals. And thanks to this debt forgiveness, the Russian company RusAl (Russian Aluminum) has become Guinea’s largest employer.
Thanks to the debts forgiven to Algeria, it has become one of the largest buyers of Russian arms – in third place after India and China.
In 2005, Russia wrote off $10 billion to Syria, and in return received lucrative contracts for the supply of weapons to the country.
In addition to economic benefits, by writing off debts Russia gains geopolitical influence in the region.
For example, the $32 billion write-off to Cuba occurred in 2014 during a time of heated relations between Russia and the United States. Cuba is separated from the U.S. by the 177 km Strait of Florida.
Many Soviet countries also write off debts for political reasons.
So debt forgiveness is very profitable for Russia.
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