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Renovation of a pariah

Five years after Russia defaulted on its sovereign debt, burning foreign investors, the government is poised to return to international capital markets next year with $2.76 billion of Eurobond issues. Thanks to the country's revival, investors are salivating at the prospect of fresh Russian paper.

The finance ministry submitted the draft 2004 budget at the end of July. It included a provision for Eurobond issues, which look more likely to be issued thanks to a change in the way Russia handles its windfall oil revenues. Until now the ministry has been using the excess earnings to pay down foreign debt, but from next year this money will go into a fund that will be used to cushion any unexpected economic blows to the economy, such as low international oil prices.

Both foreign and Russian investors would welcome the appearance of fresh Russian sovereign bonds. Russia's investment reputation, cut to shreds by the 1998 financial crisis, has now all but recovered.

Ratings agencies have upgraded the country repeatedly since 1998. As the economy enters its fifth straight year of solid growth, it is now just below the sought-after investment grades. Fitch rates Russia just one notch below these grades and both Moody's and Standard & Poor's could upgrade the country to one notch below investment grade before the end of the year, analysts say.

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