|                                                                                                                                                             |  | RUSSIAN  TRADE  FINANCE CRUNCH  EASING  SLOWLY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | by Padraic J. SweeneyAugust 1997Trade finance may become easier to obtain in Russia as foreign lenders gain confidence in the
country's economy.  The gradual improvement of Russia's macroeconomic situation--falling
interest rates, declining inflation, and a stabilized currency--followed by favorable reactions from
international financial institutions and credit agencies have bolstered this confidence.  The result
has been a dramatic increase in capital flowing into the Russian markets.  As reported by the
Interfax News Agency, foreign investment in the first quarter of 1997 totaled $2.4 billion, up 153
percent from the first quarter of 1996.   This money will not find its way into importers' hands
quickly, however, and U.S. exporters still need to work closely with their clients to finance
transactions.Russia's successful placement of three eurobond issues and the fall in Russian treasury bill
(GKO) yields to below 20 percent have caused a merging of financial interests.  Foreign investors,
until now active almost exclusively in equity markets, have begun to enter the debt market as well. 
Likewise, Russian investors, previously focusing on the debt markets, have begun to invest in
equities.More International Lending
Much new financing for Russia's private-sector is coming from syndicated loans and other debt
instruments issued by Western financial institutions, often tied to export/import operations.     In
April, for example, Russia's Mezhkombank secured a one-year, $30 million credit facility for
pre-export finance syndicated by a group of 17 mostly European banks.  Leading the syndication
were Bayerische Vereinsbank, Raiffeisen Zentralbank Oesterreich, London Forfaiting, and
Komercni Banka.  Such loans can be lucrative both for foreign lenders and Russian borrowers.
The Mezhkombank credit line carried an interest rate reported in the Wall Street Journal of 5.25
percentage points over the "London Interbank Offered Rate" (Libor).  While such rates are high
by international standards, they compare very favorably to domestic interest rates in Russia.Bank of America, through the New York office of its "Emerging Markets Group," takes another
tack on debt-based trade finance.  According to Vice President Dmitri Efimov, Bank of America
has a growing business in discounting Russian trade receivables, such as promissory notes secured
with a guarantee from a major Russian bank.  Efimov's group has negotiated very large trade-related facilities for Russian banks and corporations to finance the import of U.S. and European
goods.Public Sector Sources
Public-sector financial institutions are also responding to improved conditions in Russia by
making capital available on easier terms than previously offered.  The European Bank for
Reconstruction and Development and the World Bank are  jointly extending a $300 million
credit line to finance restructuring investments in medium-sized and large Russian enterprises. 
The credit line will enable banks to lend to Russian firms modernizing or restructuring their
production facilities, diversifying their product lines, or pursuing other business opportunities.  A
group of up to 40 Russian commercial banks will on-lend funds from the credit line to Russian
companies that are at least 75 percent privately owned.The Export Import Bank of the United States has recently begun accepting private-sector risk
in Russia on a case-by-case basis.  All private-sector transactions in Russia require a commercial
bank guarantee (see BISNIS Bulletin, February 1997, Page 2).Interest Rates
Interest rates continue to drop in Russia towards levels that will make it more attractive for
Russian commercial banks to increase their commercial lending.  By mid-July, average yields on
new GKO issues had declined to 18.1 percent.  The steady fall in GKO yields is crucial, because
the attraction of investment in high-yield, relatively secure GKOs has discouraged Russian banks
from lending to commercial borrowers.Other interest rates are falling, as well.  On June 16 the Central Bank of Russia (CBR) cut its
refinancing rate from 36 to 24 percent.  CBR First Deputy Chairman Alexander Khandruyev told
the Interfax News Agency that a CBR refinancing rate of 36 percent did not make sense when
annual inflation is 14-15 percent and government securities are yielding just  21 percent.  Russia,
he  added, has now reached the stage where the CBR will be able to quote its interest rates "by
fractions of a percent"--indicating that interest rates are likely to remain moderate and would
fluctuate within relatively narrow limits in the future.  Commercial interest rates are coming down,
as well --such as the rate for Moscow overnight interbank ruble loans, which dropped down to
single digits in early June.These changes take place against a background of other positive developments.  Inflation, as
noted above, remains quite low by recent standards and was less than 1 percent in May.  The
Russian Government's agreement last November with the "London Club" on settling Soviet-era
debts (see BISNIS Bulletin, July 1997, Page 2), and favorable international credit ratings prior to
the country's first major international bond issue also indicate improved conditions for lending in
Russia.What to Do
U.S. companies exporting to Russia should remember that trade finance is still risky and
expensive there.  Look carefully at banks and companies benefiting from recent trade finance
oriented transactions as you develop your business strategy in Russia.  Be sure to work with your
local buyers to identify the best financial options, and don't forget EBRD and other facilities in
your financial planning. For more information on banking and finance in Russia, visit BISNIS
Online at www.mac.doc.gov/bisnis/country/rusecon.htm#Part4.Padraic J. Sweeney covers banks and banking for BISNIS.  John Crosson, who covers finance
for BISNIS, contributed to this article.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)