A little over two years ago, Moscow's serene President Hotel became the centre of frantic activity as Boris Yeltsin's political supporters plotted and spent their way to a historic victory in that year's presidential elections.
Today, the hotel will again reverberate with high tension and inflamed passions against the backdrop of political and economic uncertainty. Scores of Russian and foreign bankers begin discussions over the country's commercial debt obligations, the outcome of which could affect more than $50 billion of outstanding loans and contracts, and which will shape Russia's relations with the world financial community for years to come.
The meeting of what is being called the "Moscow Club" has been prompted by the Russian government's decision last week to impose a 90-day moratorium on most foreign commercial debt repayments.
The government decided to buy the banking sector time to sort out its problems after dozens of Russian banks slid to the brink of bankruptcy following the collapse of the country's financial markets.
Many foreign bankers, though, are furious with the government's decision to prevent Russian entities repaying their obligations, even when they are capable of doing so. Solvent Russian banks are also irritated by the moratorium, which will harm their future credit ratings
Although details of the moratorium were initially confused, it now appears to affect repayment of principal on foreign syndicated loans, margin calls on repurchase transactions, and settlements on foreign currency forward contracts.
The Russian banking sector's ability to service its debts will depend critically on how the government decides to restructure the $40 billion government debt (GKO) market, which was frozen last week.
The details of this exchange are expected to be announced today. Government ministers appear to have rethought their plans to inflict most of the losses on foreign holders of these treasury bills and now promise to divide the pain equally with Russian investors.
Foreign investors collectively hold up to $17 billion of GKOs and will be forced to write down big losses on their portfolios.
Bank for International Settlements figures show that German commercial banks had the biggest collective exposure to the Russian market at the end of 1997, with total loans of $30.5 billionn.
