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President Vladimir Putin: What is the situation with servicing our debts, our foreign debt?

Finance Minister Alexey Kudrin: The Russian Federation’s foreign debt came to $115 billion at the beginning of the year. The average rate for servicing this debt is from 7–13 percent. Former Soviet debt accounts for part of the debt, while part of it was incurred during the 1990s. Currently it is quite an expensive debt. The cost of servicing it is approximately 3–4 times higher than that of similar debt in the G8 countries. Of course, paying this kind of interest is quite difficult – we spend up to $7 billion a year on interest payments on the foreign debt. We have said that we cannot spend money from the Stabilisation Fund on the domestic market because this would either lead to increased inflation or a considerably stronger rouble, but if we use these funds to service the debt it not only lessens the burden upon future years but will also make it possible to then spend money on other social aims and, above all, save money on interest payments. If we pay off the debt, for example, for every $10 billion of debt that we pay off, we can make a corresponding future saving of from $700 million to $1.3 billion in interest payments every year.

Vladimir Putin: Resolving social problems and paying off the debt are somewhat different tasks, but I think the government is able to manage both of them.

Alexey Kudrin: We have taken a very balanced approach in our proposals for 2005. Essentially, we are increasing budget expenditure this year by slightly more than 200 billion roubles and will be spending, possibly, considerably less on debt payments. In this way we are taking a balanced approach so as to at once make progress in the social sphere and ensure our country is generally solvent and improve our financial situation over the coming years.

Vladimir Putin: How big are our debts as a share of GDP at the moment?

Alexey Kudrin: This year it will be less than 30 percent.

Vladimir Putin: What is the situation in this respect for the western European countries, for the G8 countries?

Alexey Kudrin: It’s 60 percent in the United States. Under the terms of the Maastricht agreements, debt must not exceed 60 percent of GDP in the countries that have adopted these agreements and that make up the common currency zone. But although our debt represents 30 percent of GDP, we should keep in mind that it is four times more expensive to service, in other words, our intra-budgetary costs represent a greater share in percentage terms than in these countries which, although their debts are bigger, pay lower interest costs from their budgets.

Vladimir Putin: It clearly makes economic sense to pay these costs off as quickly as possible.

Alexey Kudrin: Yes, this is clear. I can give you a most recent example. I had a meeting with the Norwegian Finance Minister the day before yesterday and he told me about Norway’s oil fund. This fund already comes to more than $170 billion and has reached almost 70 percent of GDP, but the country has passed legislation prohibiting this money from being spent within Norway – it can only be used for servicing the foreign debt because the Norwegians think that if they start spending the money within the country the currency will strengthen so much that it will undermine opportunities for industry…

Vladimir Putin: For exports.

Alexey Kudrin: And for exports. But it would make imports cheaper and imports would bleed local companies dry and would be more competitive than locally produced goods. The Norwegian Finance Minister said that they have, of course, no intention of ever taking such steps and they have this legislative ban on using their oil fund money within the country, and the share of oil revenues that goes into their fund is considerably higher than it is in Russia.