What happened to the “Russian loans” after the Bolshevik revolution? In this study of geo-economic power relations, Kim Oosterlinck traces the multiple attempts by French creditors, between 1919 and 1926, to recover their frozen assets.
The repudiation of Russian loans remains a typical case in international financial history—but exceptional in its radicalism—of a country defaulting on its creditors. Kim Oosterlinck, professor at the Université libre de Bruxelles, specialist in banking history and statistical history, has looked at the fate of holders of securities issued in France (with brief allusions to the United Kingdom and Germany) by the Russian state or by Russian companies, whether or not they were subsidiaries of Western European companies. This book looks back at the financial links that allowed Tsarist Russia to build up a heavy debt to the West, and analyzes the fate of Russian loans once the Bolshevik revolution called into question the historic alliance with France. This revolution in fact poses the problem of the continuity of the State and in particular of its financial commitments, of respect for the rules of the law of economic diplomacy and private law – since private capitalism had been involved before the war in this financing – and, finally, of the possible desire of Russia, then of theUSSRto renew certain business relations with Western European countries. These geopolitical and economic issues are also coupled with domestic political issues. In France, these “Russian loans” remain at the heart of the concerns of stock market portfolio holders and the financial press, and the Paris financial market is rife with debates, sometimes bitter, on the relevance of these Franco-Russian financial links and the risks they pose.
This book, sharp but accessible, because always well argued and precise, extends the studies of René Girault and Russian or Belgian colleagues on “Russian loans”, by offering a more quantitative perspective and by developing the analysis over a long period. The author considers the question of Russian debt from three points of view: the positions of French and Russian political leaders, the general framework of military events in Russia, and the comparison with other crises linked to the non-repayment of heavy debts by States with XIXe And XXe centuries. He thus describes the repercussions of the Great History on the small history of the Stock Exchange and savers or investors.
On this point, we can regret that the author has left aside banks and institutional investors (asset managers, insurance companies, financial holding companies, for example Belgian) which, holding packages of Russian securities, had a capacity for influence that it would have been interesting to analyze. This is because he focuses on associations of Russian security holders, on the financial press (The Rentieretc.) and the ministers supposed to plead the cause of French savers (estimated at 1.6 million): “mobility democracy” was in fact confronted with Bolshevik democracy!
French hope
True to their principles of action, the Russian revolutionaries repudiated the debt inherited from tsarism, capitalism and imperialism. The book shows how they nevertheless adapted to diplomatic events: for example, some concessions were made to the Germans during the Treaty of Brest-Litovsk, with Russia agreeing to pay five tranches, in gold, for six billion marks. But, throughout the negotiations of the years 1920-1926, despite some timid and provisional advances, and the proposal of a vast multilateral agreement by France in 1922, the Bolsheviks remained imperturbable in the face of the demands of Russia’s former financial and then military allies. However, Russian securities accounted for a quarter of French investments outside the country before the war, and four-fifths of the Russian public debt were placed in Paris, while industrial values were held in France for a third, in London for a quarter and in Germany for 16%. Even the idea of a 15-year moratorium in exchange for recognition of the debt, or the aid once proposed by Western European negotiators to combat the famine raging in Russia, were rejected.
Faced with these refusals, the former allies and savers placed their hopes in a victory of the White armies against the revolutionary government. The civil war is thus analyzed from the point of view of French opinion, the positions of parliamentarians and ministers, and, above all, the evolution of the stock market price of Russian securities: indeed, the great originality of the book is to follow the stock market price of “Russian bonds” over several years. The author intends to measure (statistically) the optimism or pessimism reflected by the stock market price and the way in which the holders lived on illusions and disappointed hopes. Roughly speaking, the value of the securities collapsed by half or two-thirds; It jumps 10% up and 10% down depending on events, which is explained by the fact that the Bolsheviks’ capacity for resistance is assessed, sometimes with optimism, sometimes with pessimism, then finally lucidly.
Savers and the French State
If France advises and supplies weapons to the troops of the White armies, it does not do so to defend the cause of savers but as a geomilitary strategy. However, during the major conferences on the reconstruction of Europe, the question of debts is addressed: we dream of compensation, we establish the amounts concerned. But the impasse is quickly admitted: the default of the Russian debt is consecrated. The process of recognition of theUSSR was hardly stopped by the question of debts: after the United Kingdom in 1921, France resolved to do so in 1925. A Franco-Soviet conference was even held in Paris in 1926 at the initiative of Anatole de Monzie, where commercial questions nevertheless dominated. But the Soviet proposal to recognize part of the debt by repaying 60 million francs per year – a value calculated by theUSSR depending on the depreciation of the franc compared to the amount of 400 million estimated in pre-war francs – immediately transferred in new credits to finance Russian purchases in France – is left without follow-up.
Surprisingly, the group representing the interests of savers then turned to the French State, although it had not provided any guarantee for the securities issued before the war by Russia. As it still needed them to finance the end of the war, reconstruction and the budget deficit, small concessions were made to them, in October 1918 and then in July 1919: they could subscribe to certain loans by providing coupons owed by Russian debtors (for the payment of interest for the past year), and the State exchanged scraps of Russian securities for its own securities. These concessions remained limited: none of the successive governments came to exchange Russian debt for French debt, and the total amount of the sums mobilized during this exchange of coupons for French bonds reached only a few hundred million francs. The government also knows that the depreciation of the franc affects these payments, because they weigh less and less in current values compared to the issue price.
The lessons of history?
Beyond the question of bilateral relations between France and Russia in the 1920s, K. Oosterlinck offers some original historical comparisons between the fate of “Russian loans” and that of securities issued by other countries over the last two centuries. This allows him to develop a broader reflection on the long-term risks of public or private debts. States other than France have indeed agreed, under duress, to erase claims on over-indebted and bankrupt States, such as certain Latin American countries or Greece. Debt diplomacy is incontestably one of the levers of financial history, whether it involves violent reactions (the French expedition to Mexico in the 1860s), sanctions (trade constraints, embargoes, etc.) or negotiated solutions, when the debt is spread out over time or reduced in value, as was the case for Greece in the XXIe century.