RUSSIA has finally paid off its Soviet-era debts to the Paris Club of wealthy nations in a dramatic display of the country’s new-found economic clout.

The repayment of $22.5 billion (£11.9 billion) that Russia’s Vnesheconombank made yesterday was the largest-ever repayment to the Paris Club of 19 creditor countries.

Analysts said that ratings agencies would upgrade Russia’s sovereign rating after the clearest sign yet of President Putin’s determination to use the soaring value of Russian oil to clean up his country’s reputation on the financial markets.

The move knocked about a third off the country’s foreign debts, which previously stood at $70 billion.

Russia had been due to pay off the debts by 2020, but the sharp rise in the price of oil has engineered a dramatic improvement in the country’s fortunes. That enabled it to bring the repayment forward, at an estimated saving of $12 billion.

Under the terms of a deal agreed in June, Russia also agreed to pay a premium of $1 billion to compensate the creditors for lost interest.

In its budget provisions, Germany, the biggest creditor, had allowed for the debt to be unpaid until 2015.

Mr Putin said: “We used to live with our hand held out for many years . . . but now the Russian economy cannot only repay debts but do so ahead of time.”

The Finance Ministry said that the repayment would reduce Russia’s foreign debts as a share of GDP to just 9 per cent. “The early repayment to creditor nations was made possible by growth in the economic and financial might of Russia,” it said.

“Repaying the entire sum . . . will facilitate a strengthening of Russia’s international authority as a state with significant financial reserves and stable borrowing.”

Christopher Green, senior economist at the Moscow Narodny Bank in London, said that the move had political implications as well as making economic sense. “It reflects the emergence of Russia as an economy on to the global stage,” he said.

Russia, the world’s second- largest oil exporter, has enjoyed a marked turnaround in its fortunes since its $40 billion domestic debt default and rouble devaluation in 1998.

At that time the price of oil was below $13 a barrel, compared with nearly $72 a barrel yesterday.

Two years ago, Russia set up a budget stabilisation fund to insulate it against fluctuations in the price of oil.

Over the past year the country has redeemed more than $40 billion of debts.

In another sign of strength, the rouble was made fully convertible at the start of July, six months ahead of schedule.

Following the repayment, Standard & Poor’s and Moody’s, the ratings agencies, are widely expected to grant Russia an upgrade. Moody’s rates Russia Baa2 while S&P rates it BBB. Fitch upgraded the country last month to BBB+.

Mr Green said: “To a large extent, the profile of economic activity in Russia will depend on oil prices. Going forward, you are probably likely to see further improvements. This is a very favourable time for Russia.”

FALL AND RISE

August 1998: after months of pressure on the nation’s currency, Russia announces devaluation of the rouble and suspension of the market in government bonds. Shares plunge and Russia announces default on its $40 billion foreign loans, which date back to the Soviet era

March 2000: Vladimir Putin elected President

2004: Russian Stabilisation Fund established

August 2005: Russia pays off $15 billion of Paris Club debts

July 2006: Rouble becomes convertible currency

August 2006: Russia pays off remaining $22.5 billion Paris Club debts

• Paris Club debts written off include Germany ($7.7bn), France ($1.8bn), Finland ($300m), Denmark ($120m), Switzerland ($65m) as well as debts to Australia, Austria, Belgium, Canada, Italy, Japan, the Netherlands, Spain, Sweden, UK and US

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