Strange: the West has declared a war of annihilation on us, while we continue to play by the peacetime rules
I found the statement by Finance Minister Anton Siluanov at the beginning of March strange: Russia will continue to honour its obligations under the sovereign loans received earlier, i.e. it will pay the interest on them and repay them in due time. The only new nuance is that Russia will fulfil its obligations in roubles, not in foreign currency. As we know, the West has rejected this method of repayment of Russian debts and threatened the Russian Federation with a default. For his part, Siluanov said on 11 April that Moscow was ready to go to the International Court of Justice to challenge the West’s forthcoming decision to sovereign default on Russia.
What is strange about this is that the West has declared a war of annihilation against us, while we continue to play by the peacetime rules and are even going to appeal to international justice.
What are the options? We will find a clue in our own history. About two years before the German attack on the Soviet Union, on Aug. 19, 1939, the German-Soviet trade agreement was concluded. Germany gave the USSR a loan of 200 million German marks and undertook to deliver to the Soviet Union on this loan the machine tools and other factory equipment, as well as military equipment; USSR undertook to repay the loan with deliveries of raw materials and food.
On June 22nd, 1941 our deliveries of the goods in repayment of the credit were stopped.
An even more interesting precedent for the annulment of our obligations to hostile countries occurred more than a century ago. It is about one of the first acts of the Soviet power – the Decree of VTsIK of January 21 (February 3), 1918 on the annulment of State loans of tsarist and Provisional governments. The total amount of those obligations at the time of publication of the decree was 60 billion zol. rubles. The decree was very concise and was adopted taking into account the current international situation. The former Entente allies of Russia were openly preparing an intervention against the Soviet state and in December 1917 a naval and trade blockade was set up against Russia in the Baltic Sea.
Article 1 of the decree stipulated that the undertakings given by “the governments of the Russian landlords and the Russian bourgeoisie” were to be annulled retroactively, as of 1 December 1917. These were obligations of the tsarist and Provisional governments that arose from bond issues or loans. For holders of government securities within the country, certain exemptions and reliefs were granted. These, in particular, applied to low-income holders of government securities not exceeding 10,000 roubles. And the external loans of the tsarist and Provisional governments were completely annulled (Article 3). The general management of the liquidation of state loans was entrusted to the Supreme Soviet of National Economy (VSNKh) and the procedure itself to the State Bank, which had to immediately start registering all the state loan bonds, as well as other interest-bearing securities. The decree particularly affected the biggest of the Tsarist government’s foreign creditors, France, which had as many as 1.6 million holders of Tsarist loans worth up to 12 billion gold francs by 1914.
The collective West then stood on end. The Bolsheviks, however, were very active in using the decree as a trump card in negotiations with unfriendly states and were willing to make certain concessions in exchange for concessions from the opposite side. Incidentally, the Brest peace treaty concluded with Germany (March 3, 1918) included the recognition of Russia’s debts to Germany (about 1 billion gold rubles). Negotiations were also held with the Entente on the debt (e.g. the “Bullitt mission” in 1919), but nothing was agreed there.
In April or May 1922 Genoa hosted an international economic conference organised by the Entente States, to which Soviet Russia was also invited. Incidentally, in the margins of the Genoa Conference in Rapallo, secret talks were held between the delegations of Germany and Soviet Russia, during which important agreements were reached. One of them was the decision to nullify the counter claims of the two states, including Germany’s claims on Russian debts arising from pre-war German credits and loans. The Entente countries tried to get the Soviet delegation to at least acknowledge them, without making immediate payments. By the beginning of 1922, the amount of obligations of Russia to foreign creditors and lenders (minus obligations to Germany), taking into account the interest which accrued, was estimated to be 18.5 billion gold roubles.
The head of the British delegation, Lloyd George, repeated over and over: “We are not asking Russia to pay its debts immediately. We only want an acknowledgement of its debts. And it can begin payments in, say, five years from now (1927), when it is finally back on its feet. Of course, Georgy Chicherin, who led the Soviet delegation, had no problem agreeing to this formula, because a lot of water will run out in five years, but the Commissar of Foreign Affairs of the RSFSR did not go for it. And a member of the British delegation, the renowned economist John Keynes supported the position of the Soviet delegation: “Does not Lloyd George think that at the cost of worthless promises, Chicherin will grasp minute gains and benefits that could be discarded in five years. If this is the psychology of all politicians, then nations reason more simply, and this must be reckoned with. To impose on Russia an obviously impossible obligation is to dishonour itself.
The essence of Keynes’ “plan” to “solve the Russian question” was formulated as follows: “War debts must simply be written off against Russian counterclaims. Recognition de jure, a five-year respite (moratorium) on the payment of interest and debt, the replacement of all previous debts with new 2.5 per cent obligations”. From the sixth year onwards, Russia would have had to pay compensation of about 20 million pounds sterling on the above securities, which, on the one hand, is quite affordable to the debtor; on the other hand, it is profitable for the holders of the securities. In this case, the Englishman was following the principle that “a bird in the hand is better than an eagle in the sky.
In refusing to pay off all or part of the foreign liabilities that had arisen before the October Revolution of 1917, the Soviet delegation appealed to historical precedents. In particular, reference was made to precedents relating to the bourgeois revolutions: “The Russian Delegation must observe that the totality of the claims formulated therein is due to the changes brought about by the Russian Revolution. It is not for the Russian Delegation to defend the great act of the Russian people before an assembly of countries whose history bears witness to more than one revolution. But the Russian Delegation is compelled to recall the basic principle of law, that revolutions, which constitute a violent rupture with the past, bring with them new legal conditions of the internal and external relations of states. Governments and regimes which have emerged from a revolution are not bound by the obligations of the overthrown governments. The French Convent, of which France claims to be the rightful heir, declared on 22 September 1792 that “the sovereignty of peoples is not bound by treaties of tyrants”. In accordance with this proclamation revolutionary France not only broke the political treaties of the old regime with foreign countries, but also refused to pay its national debts. It was only out of political opportunism that it agreed to pay one third of these debts. This is the “consolidated third”, the interest on which began to be paid regularly only at the beginning of the 19th century.
This practice, translated into legal doctrine by eminent jurists, was almost always followed by governments that emerged from revolution or liberation war. The United States rejected the treaties of its predecessors, England and Spain. The victorious powers, on the other hand, during the war, and especially when concluding peace treaties, did not hesitate to seize the possessions of the subjects of the defeated countries, whether on their territories or even in those of other states. In accordance with precedents, Russia cannot be forced to assume any kind of liability towards foreign powers or their subjects for the cancellation of public debts and nationalisation of private property” (Gromyko A.A., Khvostov V.M. Documents of foreign policy of the USSR. 1922. – Moscow: Political Literature, 1961, p. 366)
The Soviet state also drew the attention of its creditors to the precedent set at the 1919 Paris Peace Conference. During the 1914-1918 war, Germany had aided Austria-Hungary, Bulgaria and Turkey. Germany aided Austria-Hungary, Bulgaria and Turkey. The total amount of loans that Germany granted to its allies was estimated to be around 2,600 million roubles in gold. Under the Peace of Versailles Germany renounced its claims against its former allies. Could Britain and France not give up their claims to former Entente ally Russia? This was the question posed by the Soviet delegation.
“Another legal question: is the Russian government responsible for the property, rights and interests of foreign subjects who suffered damage as a result of the civil war, over and above the damage that was caused by the actions of the government itself, that is, the cancellation of debts and nationalisation of property? Here too, legal doctrine is entirely in favour of the Russian Government. Revolutions and all great popular movements, likened to a force majeure, do not, therefore, give those who have suffered from them any right to redress. (ibid.).
The Genoa Conference did not lead to any compromises on Russia’s debts. The Soviet state, until the second half of the 1980s, continued to be guided by the 1918 Decree of the VTsIK on the annulment of external state loans of the tsarist and Provisional governments. (For more details see: V. Katasonov. Russia and the West in the Twentieth Century. The History of Economic Confrontation and Coexistence. Moscow: Institute of Russian Civilization, 2015).
I think a thoughtful study of the history of Russia/Soviet Union in the twentieth century will allow us to find clues to the most effective and strategically significant solutions in the current circumstances. This includes the issue of our debt obligations to the collective West. The sanction war declared to us can be without any stretch considered a force majeure with all the ensuing consequences for Russia’s creditors.
Valentin Katasonov, FSK
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