ML-Implode News - Brezhnev Bonds Haunt Putin as Investors Hunt $785 Billion

Unlike other former Soviet republics that settled similar debts in the 1990s at a fraction of what was lost, Russia pledged to cover the whole amount. President Boris Yeltsin signed a law in 1995 ordering the government to restore savings via bank deposits and Soviet bonds based on what those holdings could have purchased in 1990. Payments started in earnest during Putin's first term, when surging oil prices pushed the budget into surplus. Now Putin is back in the Kremlin for a third term and the budget is barely breaking even.
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The estimated 25 trillion rubles in liabilities, if fully recognized, would boost Russia's debt nearly 10-fold, Vladimir Osakovskiy, chief economist at Bank of America Merrill Lynch in Moscow, said today in an e-mailed comment. Earlier settlements suggest Russia will find a way to avoid damage to its credit ratings or sovereign debt, he said.

"Back in 1997, Russia settled outstanding tsarist bonds in France for $400 million, which was less than 1 percent of foregone purchasing power in nearly 100 years of foregone interest," he said. "We expect similar settlement in this case as well."

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Brezhnev Bonds Haunt Putin as Investors Hunt $785 Billion