Running out the clock may now be a losing tactic. In their Lobanov ruling, the Strasbourg judges cited Russia’s refusal to say how many of the 1982 bonds are outstanding and its repeated suspension of a mechanism for redeeming them, “for reasons that remain unclear to the court.”
The Justice Ministry, which represents Russia in Strasbourg, said in a faxed statement that it honors all judgments by the European Court of Human rights, adding that the Lobanov ruling applies only to the 1982 notes. The Finance Ministry declined to comment.
The estimated 25 trillion rubles in liabilities, if fully recognized, would boost Russia’s debt nearly tenfold, said Vladimir Osakovskiy, chief economist at Bank of America Merrill Lynch in Moscow. Earlier settlements suggest Russia will find a way to avoid damage to its credit ratings or sovereign debt, he said.
“Back in 1997, Russia settled outstanding tsarist bonds in France for $400 million, which was less than 1 percent of foregone purchasing power in nearly 100 years of foregone interest,” he said. “We expect similar settlement in this case.”
There are no public records for how many Brezhnev bonds were sold, Kheyfets said. As bearer bonds with no ownership records, the 1982 notes served as a second currency supporting the Soviet shadow economy, he said.
Russia did not mention the notes or the estimate of Soviet savings debt in the 143-page prospectus for its $7 billion sale of eurobonds this year.
Some of the securities were cashed in or swapped for new debt in the early 1990s. After the 1995 law, when Russia agreed to restore lost savings at 1990 levels, the state converted the 1982 bonds into “promissory rubles,” essentially increasing their face value by 40 percent. Later legislation pegged their value to a basket of consumer goods and ensured they would accrue interest of at least 9 percent. The government last valued the promissory ruble in 2003, at 32.34 current rubles, a figure cited by the court in the Lobanov case.
Lobanov offered a “very sound” valuation, leaving little room for rebuttal, said Vasily Vasilyev, a lawyer in Moscow. Russia dodged similar rulings by changing the law during European court proceedings, he said.
Speculation on the certificates has made it as far as eBay, where 25-ruble 1982 bonds are being offered for $2.85 apiece.
On Russian Web sites, some sellers claim to have proof their bonds are listed as subject to payment in a Finance Ministry registry. Others are offering notes sold in former Soviet republics that Russia is not legally obligated to repay.
Zakir Agabayev said he discovered 600,000 rubles (about $18,750) of the notes in a trunk at his wife’s grandmother’s home in Kyrgyzstan. He said he offered to sell the bonds on the Dorus.ru message board, but the best offer was 2.5 percent of face value, so he declined.