Roger W. Robinson CNBC Interview

Russia’s Eurobond Issuing
Thursday, November 21, 1996

CNBC: Russia has issued its first
international bond in more than 75 years-the one billion dollar,
five year Eurobond. The emerging markets have been very keen on
this offering. There is, however, some growing concern about what
exactly those bonds will be funding due to the political
instability in the Kremlin and the fact that the country is
indeed in an illiquidity squeeze. Our next guest thinks investors
should look before they leap for the Eurobonds. Roger Robinson is
a former Chief Economist at the National Security Council at the
Reagan Administration and he currently heads up his own
consulting firm in Washington. And he joins us now from
Washington. Mr. Robinson, thanks for dropping by.

Roger Robinson: Thank you, Sue.

CNBC: Give me your take on why Russia is
floating this issue and how successful it will be.

Mr. Robinson: Well, I think it’s already
clear that its been very successful–oversubscribed from 500
million to about a billion dollars. I think it’s pretty clear
that they have a number of benefits here: they expand their
borrowing base enormously. Since 1917, they’ve primarily borrowed
from Western governments and banks only. Now you have securities
firms, pension funds, insurance companies, individual investors
all able to take a piece of this.

CNBC: And what is it that makes this
particular issue so attractive–hence it being oversubscribed?

Mr. Robinson: I think they are a new address
on the international capital markets. This is obviously a debut,
as I say, from 1917. That is an unusual event for the emerging
market groups.

CNBC: And in terms of what’s ahead for Russia
though, with the political instability and Mr. Yeltsin just
getting back on his feet, does that worry you at all about the
ultimate backing behind that bond?

Mr. Robinson: Oh, I think it does, Sue. I was
surprised and I think most analysts were surprised by the
favorable credit rating received by IBCA, Moody’s and Standard
& Poor’s that gave rise to this success. It’s a politicized
process at some level. Look at the IMF which was being relied
on–that was thoroughly politicized. And in the midst of this
bond offering they have suspended disbursements. Russia hasn’t
even signed the formal debt rescheduling on the $100 billion in
Soviet Union debt owed to western governments and banks, at least
at this time–at least it hasn’t been reconciled.

CNBC: What kind of rating would you have
given it, because obviously Moody’s and some of the other
investor services gave it a better rating than you thought was
appropriate and I have heard that from others. Would you have
even given it an investment grade rating?

Mr. Robinson: I frankly wouldn’t have a this
time. I mean I just don’t think they meet the criteria. We need
to look at where that money is going and how it’s being used.
This is not necessarily a benign event. They say it is for
funding the fiscal deficit, Sue, but if we think about it, they
also have a Topol ICBM missile, they have strategic modernization
goals, a more belligerent foreign policy as I mentioned and the
funding of a lot of former client states, like Iraq to Cuba with
a great deal of money involved. So, we have to ask ourselves–not
to mention the war in Chechnya–what are we funding here? And
that’s why I think it’s probably useful to have the appropriate
congressional committees at least ask some pertinent questions.

CNBC: So, are you saying we could be, in a
way, doing some backdoor funding for countries or political
affiliations that normally the United States would be against?

Mr. Robinson: I think it’s true. I mean after
all, you have here unconditioned, largely non-transparent,
undisciplined cash flowing into the coffers of folks like
Yvengeny Primakov–no friend of the West–and I think we need to
try to look at these questions carefully to make that it’s
consistent with the national interest and Western security
interests more broadly.

CNBC: Now, if Russia falls again or gets into
more trouble or political unrest increases in Russia, are those
bonds re-schedulable or re-financeable or not?

Mr. Robinson: I think that’s one of the big
problems–they are not reschedulable generally. The secondary
markets make the distribution too prolific. In fact, that’s kind
of the problem we got into with Mexico and the Tesobonos and why
we had to inappropriately use the Exchange Stabilization Fund of
the Treasury to have the American people fund out those bond
holders. Not to mention we have new constituencies being formed
all over the world on the political side to make sure that, for
example, Russia’s not to subject to economic sanctions or any
other serious penalties for misdeeds around the world.

CNBC: Is there a timetable, you think, on how
soon we will be able to tell whether or not these are actually
going to be successful? Obviously they have been initially, but
is there any kind of timetable to see their future success?

Mr. Robinson: Well, I think we will know
plenty as to whether the IMF, for example, kicks back in with
disbursements. And how does the Congress react to this? I may be
exaggerating their concern, but nevertheless, we have to look at
the political and security angles which have not at all been
scrutinized to date. I think we will probably know in the first
quarter how it is going because Russia has a very ambitious plan
in terms of bond offerings and this expanded penetration into the
Western securities markets.

CNBC: Very interesting. Mr. Robinson, thank
you so much.

Mr. Robinson: Thank you, Sue.

CNBC: We appreciate it. We’ve been speaking
with Roger Robinson, former Chief Economist at the National
Security council in the Reagan Administration. He joined us from
Washington.