The Soviets and Tsarist Debt

Against the Current, No. 195, July/August 2018

Eric Toussaint

THE FEBRUARY 1918 repudiation of the Russian Tsarist debt by the new Soviet government shocked international finance and sparked off unanimous condemnation by the governments of the great powers. The struggles that followed are of both historical and present-day interest for nations crushed by international debt.

Repudiation of the debt was raised by the revolutions of both 1905 and 1917. The initial revolutionary uprising was caused by the conjunction of many factors, including the debacle in Russia’s 1904 war with Japan, the wrath of peasants demanding land, the popular rejection of autocracy (Tsarist dictatorship), and workers’ demands.

The movement first began with strikes in St Petersburg in 1905 and soon spread throughout the empire like wildfire, adopting different forms of struggle. Out of the process of self-organization by the masses emerged councils, or soviets in Russian: peasants’ councils, workers’ councils, soldiers’ councils and so on.

Trotsky, who presided over the soviet of St. Petersburg (capital of Russia until March 1918), explained in his autobiography that the arrest of its entire leadership on December 3, 1905 was triggered by the publication of a manifesto in which the elected members of the council appealed for the repudiation of debts contracted by the Tsarist regime. He also explained that this 1905 call for the non-payment of the debt was finally realized in early 1918 when the Soviet government adopted a decree for the repudiation of the tsarist debts:

“The arrest took place a day after we had published our so-called financial manifesto, which proclaimed that the bankruptcy of Czarism was inevitable, and issued a categorical warning that the debts incurred by the Romanovs would not be recognized by the victorious nation.(1),(2) “In this respect, as in others, the year 1905 was a preparation for the year 1917.”(3)

When revolution broke out in February 1917, spearheaded by a massive women’s strike (which started on February 23, 1917,(4) the International Day for Women’s Rights),(5) the Russian people wanted to get rid of the autocratic tsarist regime. They wanted bread, an end to the war, access to land for tens of millions of deprived peasants who were forced to risk their lives in a war whose objectives were totally alien to them.

The Provisional Government replacing the Tsar, led by the moderate socialist Kerensky,(6) refused to distribute land to the peasants, wanted to carry on with the war, and could not feed the people. It also pledged to repay the debts contracted by the tsarist regime to foreign creditors, and contracted new loans to continue the war.

Kerensky’s policies triggered dissatisfaction, which in turn led to a second revolution in October 1917 (November 7, 1917, according to the new calendar adopted later). The new government,(7) supported by the congress of the Soviets, pledged to restore peace, distribute land and, in a bid to revive the country’s economy, repudiate debt and nationalize the banking sector.(8)

Peace and Repudiation of Debts

At the beginning of January 1918 the Soviet government suspended foreign debt servicing, and in early February decreed the repudiation of all tsarist debts as well as the debts contracted by the Provisional Government. Simultaneously it decided to confiscate all the assets of foreign capitalists in Russia and restore them to the national estate. Russian public debt amounted to £930 million (roughly 50% of GDP) in 1913. Between the beginning of the war and Bolsheviks’ accession to power with their Left Socialist Revolutionary allies, the debt soared to £3,385 million, about three-and-a-half times what it had been.

The desire for peace had been one of the basic causes of the revolutionary uprising of 1917. The great majority of Russian soldiers were set against pursuing war. Almost all were peasants who wished to go home and work on the land. Moreover, for many years, since long before the start of the war, the Bolsheviks, who had been members of the Socialist International until its betrayal of the working classes in August 1914, had opposed the policy of preparation for war. They maintained that what was needed was a common struggle to bring capitalism and its imperialist phase and colonized territories to an end.

To bring this orientation to bear, the Soviet government was forced to enter separate negotiations with Berlin and its allies in 1917. London, Paris and Washington wished to carry on with the war. The Soviet government did endeavor to bring these capitals of the allied nations to the negotiating table but to no avail. Having signed a cease-fire with the German Empire in mid-December 1917, it managed to drag out the negotiations with Berlin over five months in the hopes of seeing several populations of Europe, especially the German people, rise up against their governments to demand peace. It also vainly hoped that President Wilson would support Soviet Russia against Germany.(9)

The Soviet government also wanted to show international public opinion that it wished for universal peace embracing East and West and that only as a last resort would it agree to sign a separate peace treaty with Berlin.

From December 1917, the Soviet government began to make public numerous secret documents revealing how the major powers were preparing to share out territories and populations with scant regard for their right to self-determination. One of the most sensitive of these was an agreement between Paris, London and Moscow dating from 1915 which established that at the time of victory, the Tsarist Empire would be entitled to take Constantinople, France would recover Alsace-Lorraine and London could take control of Persia.(10)

Early in March 1918, the Soviet government signed the Treaty of Brest-Litovsk with Berlin. The cost was high, with the German Empire taking a large portion of the western territory of the Russian Empire: part of the Baltic countries, part of Poland and Ukraine. In short, the treaty would deprive Russia of 26% of its population, 27% of cultivated areas and 75% of its steel and iron production.

Intervention of the Allied Powers

The Soviet government’s call for worldwide revolution combined with its desire to end the war, its repudiation of debts demanded by the Allied Powers and its nationalization measures convinced the Western leaders that they should launch a massive attack against Soviet Russia to bring down the revolutionary government and restore capitalist order. Foreign intervention began in the summer of 1918 and finished at the end of 1920, when the Western capitals were obliged to acknowledge that the Red Army had taken back control of the territory.

Fourteen countries sent troops to take part in this attack. France sent 12,000 soldiers (to the Black Sea and the North), London sent 40,000 (mainly to the North), Japan 70,000 (in Siberia), Washington 13,000 (in the North with the British and the French), the Poles 12,000 (in Siberia and Murmansk), Greece 23,000 (to the Black Sea), Canada 5,300.(11) The Japanese intervention was to last until October 1922. According to Winston Churchill, Minister of War in the British government, there were a total of 180,000 allied foreign troops.

The French government was the most bitterly hostile towards the Soviet government, right from the start. There were several reasons for this: firstly, it was feared that the revolutionary movement initiated by the Russian people might spread to France as much of the French population was vehemently opposed to carrying on with the war. Secondly, the Soviet decision to repudiate debt affected France more than any other country since Russian loan bonds had been issued in Paris and were mainly held in France.

It is now known that in 1917 the French government had begun secret talks with Berlin hoping to conclude a peace treaty that would allow the German Empire to spread eastwards to the detriment of revolutionary Russia, on condition that Alsace and Lorraine be returned to France. Berlin’s refusal to make this concession to Paris brought negotiations to an end.(12)

The armistice signed 11 November 1918 between the Western capitals and Berlin made provision for German troops to stay temporarily in the “Russian” territories that they were occupying. According to Article 12 of the armistice, Germany was to evacuate all former Russian territories as soon as the Allies deemed it opportune, in view of the internal situation of those territories.(13)

The Allies’ idea was to help the imperial army prevent the Soviet government from rapidly regaining control over the territories they had conceded to Germany under the Brest-Litovsk treaty. The Allies meant to enable anti-Bolshevik forces to take over these territories which would then serve as a rear-base while they overthrew the government.
The British historian E. H. Carr shows how unpopular the intervention against Soviet Russia was:

“In January 1919 when the allied statesmen, assembled in Paris for the peace conference, discussed the occupation of Russia by allied troops, the British Prime Minister [Lloyd George] bluntly assured his colleagues that ‘if he now proposed to send a thousand British troops to Russia for that purpose, the armies would mutiny,’ and that ‘if a military enterprise was started against the Bolshevik, that would make England Bolshevist and there would be a soviet in London.’ Lloyd George was talking for effect, as was his manner. But his perceptive mind had correctly diagnosed the symptoms. Serious mutinies in the first months of 1919 in the French fleet and in French military units landed in Odessa and other Black Sea ports led to enforced evacuation at the beginning of April. Of the troops of several nationalities under British command on the Archangel front the Director of Military Operations at the War Office reported in March 1919 that their morale was “so low as to render them prey to the very active and insidious Bolshevik propaganda which the enemy are carrying out with increasing energy and skill.” The details were disclosed much later through official American reports. On March 1, 1919, a mutiny occurred among French troops ordered to go up to the line; several days earlier a British infantry company ‘refused to go to the front,’ and shortly afterwards an American company ‘refused for a time to return to duty at the front.’ It was in the light of such experience that the British government decided in March 1919 to evacuate north Russia, though the evacuation was not in fact completed till six months later.”(14)

The Allies tried to persuade the new (pro-Western) German government to take part in the action against Bolshevik Russia. Despite strong pressure from the Western capitals, in October 1919 the Reichstag (the German parliament), where socialists (SPD) and liberals held the majority, voted unanimously against Germany’s participation in the blockade on Soviet Russia decreed by the Allies. To give the full picture, it should be added that at the same time certain German generals like Ludendorff, and especially Von der Goltz, who led the last organized remnants of the former imperial army, supported military actions in the East to help out the anti-Bolshevik White Russian generals.(15)

Foreign intervention backed up the White Russian generals’ attacks and prolonged what was an extremely bloody civil war (it caused more deaths than the World War in Russia(16)). The cost of the war was considerable, in terms of human lives and of material destruction; the Soviet government later demanded that this be taken into account in the international negotiations regarding debt.

Economic and Financial Blockade

From 1918, the Allied powers led a blockade against Soviet Russia. The Soviet government was prepared to pay in gold to import goods of absolute necessity, but none of the major banks or any government in the world could accept Soviet gold without crossing swords with the Allied governments. In fact Paris, London, Washington and Brussels all considered that they had a right to Russian gold to compensate Russia’s expropriated capitalists and repay debts.

This became a huge obstacle to Soviet trade. In the United States any person or company wishing to use gold for any transaction or to take gold into the country had to sign an official statement that the gold in their possession had nothing to do with the “so-called” Bolshevik government and that they guaranteed that the United States had a right on it without any reservation.(17)

After the German capitulation of November 1918, France managed to recover the heavy ransom in gold that Berlin had got from Russia in application of the Brest-Litovsk peace treaty signed in March 1918.(18) France refused to return this gold to Russia, considering it as part of the reparations Germany owed Paris. The blockade of Russian gold was carried on to some extent for years. This was how France again managed in 1928 to get the Washington authorities to prohibit a payment in Russian gold for a contract between Russia and a private U.S. company.

The Versailles Treaty was eventually signed on 28 June 1919 without Soviet Russia being involved. Even so, this treaty cancelled the Treaty of Brest-Litovsk. Under Article 116 of the Versailles Treaty, Russia could claim compensation from Germany; yet, consistent with its demand for peace without any annexation or claim for compensation, it did not do so.

What mattered most to Soviet Russia was that territory Germany had annexed in March 1918 be given back to the peoples to whom they had belonged (the Baltic, Polish, Ukrainian and Russian peoples), in accordance with the principle of peoples’ right to self-determination upheld by the new Soviet government.

This principle was also called upon in each of the peace treaties signed between Soviet Russia and the new Baltic States in 1920: Estonia on 2 February, Lithuania on 12 July and Latvia on 11 August. The peace treaties resembled one another and the independence of those states — which had been forcibly integrated into the Tsarist Empire — was systematically asserted in the first or second article. Through such treaties, Russia reasserted its opposition to the domination of financial capital, stating that debts contracted by the Tsar in the name of those occupied territories must not be repaid.

To be fully consistent with the principles it upheld, Soviet Russia went even further. In those peace treaties, it committed itself to restoring to the oppressed Baltic nations all property and articles of value that had been removed by the Tsarist regime (especially cultural and academic property such as schools, libraries, archives, museums) as well as personal goods that had been removed from the Baltic territories during the First World War.

As compensation for war damage resulting from the involvement of Tsarist Russia, Soviet Russia stated that it would grant fifteen million gold rubles to Estonia, three million gold rubles to Lithuania and four million gold rubles to Latvia, as well as concessions for those three States to exploit Russian forests across the borders.

While Russian State loans to citizens of the Baltic states were transferred to the newly independent governments, the peace treaties signed with Lithuania and Latvia stipulated that claims by smallholders against the former Russian agricultural banks since nationalized should not be transferred to the new governments but “purely and simply cancelled.” The same measures also applied to Estonian smallholders under Article 13 of the Peace Treaty with Estonia, which stated that “if, when such Treaties are concluded, Russia grants to any one of these new States or to its subjects special exemptions, rights or privileges, these shall be extended in full immediately and without special agreement to Estonia and its subjects.”

By signing these treaties, Soviet Russia meant to break out of the isolation to which it had been confined by the imperialist powers since the October Revolution. At the same time it sought to implement principles the new state wanted to uphold.

In March 1921, a similar peace agreement was signed between Russia, the Ukraine and Belarus on the one hand and Poland on the other. This document released Poland from the obligation to pay any share of the debts of the former Russian Empire, committed Russia to restoring property that had been removed by Tsarist Russia, and specified that Russia and the Ukraine would pay 30 million gold rubles in compensation to Poland. This treaty was even more significant than the one with the Baltic States, as Poland was seen by the allied capitalist powers as key to the isolation of Russia.

In the friendship treaty signed between Soviet Russia and Persia on 26 February 1921, Russia officially broke with the tyrannical policies of Tsarist Russia’s colonizing governments and gave up all its territories and economic interests in Persia. A few weeks later the Soviet government similarly renounced all liabilities, including monetary, that Turkey had towards Russia as a consequence of agreements signed by the Tsarist government.(19)

Publishing Secret Documents

With the overthrow of Tsarism in February 1917 and the seizing of power by the Bolsheviks and their Socialist Revolutionary allies in October, numerous previously confidential documents were made public. This allowed Boris Souvarine, a Franco-Russian communist activist, to consult Russian imperial archives. He discovered a vast organization of complicity with the French press that pre-dated the First World War, aimed at promoting Tsarist bond issues to French investors.

This affair, in which influential people were corrupted and became accomplices, was denounced by the communist daily L’Humanité in a series of daily articles entitled “The abominable venality of the French press” that appeared over a period of several months during 1923 and 1924.

In 1919, the French government drew up a list of Russian bondholders in France: 1,600,000 people declared holdings. Russian bonds seem to have accounted for 33% of foreign bonds held by residents of France, which was the equivalent of 4.5% of French wealth. In total, 40 to 45% of Russian debt was held in France.

One of the main Russian bonds to be exchanged on the Paris stock-market was the famous loan of 1906 which the Soviet of Petrograd had repudiated in advance in December 1905. This massive loan of 2.25 billion francs was issued by Paris in June 1906. It was destined to enable the Tsarist regime to continue repaying earlier debts and balance their books after the debâcle of the Russo-Japanese war. Credit lyonnais,(20) a French bank which had specialized in issuing Russian bonds, was making 30% of its revenue from this loan before 1914.

What happened to holders of Russian bonds when debt repudiation was announced in February 1918? In France, in September 1918, the government proposed to exchange Russian bonds for French debt-paper. Russian bondholders could acquire bonds for the new loan that the French government was making. In July 1919, the French government repeated the operation.

In Rome, London and Washington the authorities did the same: they exchanged Russian bonds respectively for Italian, British or U.S. bonds. As for the Japanese government, it indemnified Japanese holders of Russian bonds at a rate of 100%.(21)

Clearly, by acting in this way the governments of these countries came to the rescue of the bankers who should have been held responsible for financing the Tsarist regime and been made to bear the consequences of the repudiation of odious debt. In the case of the French, the French government had actively shared responsibility with the bankers who supported the Tsar’s regime. The French government had systematically encouraged the most affluent of the middle class to acquire Russian bonds.

It is important to note that in France, a large portion of Russian bonds were not exchanged for French bonds. Russian bonds paid better dividends than French bonds, with an interest rate of 5% in 1906 when the average rate for French government bonds was 3%.

Between 1918 and 1922, the financial press and the government put out the rumor that the Soviet government was about to fall and that the successors would honor the Tsarist debt. The same press insinuated that Moscow had agreed to acknowledge the debt. The ensuing situation was surrealistic: bonds issued by a government that no longer existed, repudiated bonds, went on being bought and sold on the Paris stock-market. This is a perfect example of fictitious capital.

In the period 1918-1919, the price of Russian bonds oscillated between 56.5% and 66.25% of their face value. (They had originally been sold at 88% of their face value). The price of sovereign French bonds at that time oscillated between 61% and 65%. The difference between the price of repudiated Russian bonds and that of French bonds was thus slim. Speculators (and the bankers who were at the top of the list) were certainly doing very well if they could buy at 56% when small holders were offloading them, frightened by rumors circulating in the press (and originating with the bankers), and then sell them on at 66%.

The Genoa Conference in 1922

For five weeks in April and May 1922, a summit conference was held. Britain’s prime minister Lloyd George played a central role, as did Louis Barthou, the minister of the French president Raymond Poincaré. The main aim of the meeting was to persuade Soviet Russia(22) to acknowledge the debts it had repudiated in 1918 and to cease calling for a global revolution.

Civil war had bled the Soviet Union dry and from summer 1921, catastrophic harvests had caused terrible famine. The Western capitals believed the Soviet government to be on its knees and were convinced they would get what they wanted by making the new loans and investments that Russia needed conditional upon the acknowledgment of previous debts and compensation for expropriated Western companies.

For its part, the Soviet government was ready to repay part of the debts contracted by the Tsar on several conditions: that the other powers give Soviet Russia official (de jure) recognition; that they grant State-to-State (i.e. bilateral) loans; that they encourage private firms affected by the expropriation of their subsidiaries to accept concessions to exploit natural resources, especially in the remotest areas of Siberia, as compensation. The Soviet government thus hoped that foreign capitalists would invest fresh capital of their own money in activities that would fortify the Soviet economy.

Furthermore, the Soviet government would not hear of setting up multilateral bodies to manage loans, investments or related legal disputes. There was no question of giving up any part of its sovereignty. But if its conditions were met, Moscow promised to resume payment of part of the Tsarist debt within a 30-year time frame.

In the middle of the Conference of Genoa, while the host nations adopted an uncompromising attitude towards Moscow, there was a sudden coup de théâtre. The German and Soviet delegations met in the neighboring town of Rapallo and signed an important bilateral agreement which has gone down in history as the Treaty of Rapallo.

Adolph Joffé, one of the people in charge of the Soviet delegation, phoned the Germans at 1:00 a.m. on Easter Sunday, 16 April 1922, to suggest they should meet at once and try to reach a bilateral agreement. The biographer of the then German minister for economy, Walther Rathenau, writes that the members of the German delegation met in their pajamas in his hotel room to decide whether they would accept the Soviet invitation. They did, and 16 hours later the Treaty of Rapallo was signed.(23)

The treaty included mutual waiving of financial claims, including German compensation after Soviet nationalizations “on condition that the government of the Russian Socialist Federal Soviet Republic does not satisfy claims for compensation of a similar nature made by a third Party.”(24) It is important to note that Soviet Russia remained fully consistent with the position that the government had adopted in its peace proposal in the very wake of the revolution: peace without either annexation or compensation.

Another provision in the Treaty of Rapallo said that Germany would help to boost trade between the two countries. In a nutshell, the Treaty of Rapallo, signed on the suggestion of the Soviet delegation, was a strong response to the dominant and aggressive behavior of the Western powers.

In spite of their grievances over the exorbitant claims of the Western powers, the Russian delegation said they were prepared to make concessions and made a number of proposals. They agreed, once agreement was reached, to start debt repayments after a delay of 30 years. But the Russian delegation would only sign agreements with the other governments if they fully recognized the Soviet government and they granted loans — not to repay existing loans, but to build the Russian economy.

On 2 May the host nations made new proposals. Although there were some small concessions (notably a delay of five years before resuming repayments) they demanded new unacceptable political conditions. The first article of their new document stated that “all nations should undertake to refrain from propaganda subversive of order and of the established political system in other countries than their own, the Russian Soviet Government will not interfere in any way in the internal affairs, and will refrain from any action which might disturb the territorial and political status-quo in other States.”

This meant that the Soviet government would renounce its calls to colonized peoples to struggle for their right to self-determination. The Soviet Union would give up its right to support independence movements such as in India, the African colonies of the different empires, particularly the British and the French. It would also have to relinquish its support for strikes and other forms of struggle outside its own borders.

On the debt question, Article 2 reaffirmed the position of the Western Powers: “the Russian Soviet Government recognizes all public debts and obligations which have been contracted or guaranteed by the Imperial Russian Government, or the Russian Provisional Government, or by the Soviet Government itself towards foreign Powers.”

They also maintained that “The Allies can admit no liability for the claims against them set up by the Russian Soviet Government for loss and damage suffered during the revolution in Russia since the war.” They proposed an arbitration commission that would have extensive powers and in which Russia would be in minority.

Reaffirming the Right to Repudiate Debt

On 11 May, the Soviet delegation released a declaration that marked the failure of the Genoa negotiations and forcefully reaffirmed the right to repudiate debt. George Chicherin said, “It may be observed that more than one of the States present at the Genoa Conference has in the past repudiated debts and obligations which it had contracted, and that more than one has confiscated or sequestered the property of foreign nationals, as well as of its own nationals, without for that reason being exposed to the ostracism inflicted upon Soviet Russia.”

Chicherin pointed out that a regime change through revolution results in rupture with the obligations of the former regime. “The Russian Revolution needs no justification before an assembly of Powers, many of whom count more than one revolution in their own history. Revolutions, which are violent ruptures with the past, carry with them a new juridical status in home and foreign relations. Revolutionary governments are not bound to respect the obligations of governments which have lapsed.”

Chicherin continued: “The French Convention proclaimed in 1792 that ‘The sovereignty of peoples is not bound by the treaties of tyrants.’ In accordance with this declaration, revolutionary France not only tore up the political treaties of the former regime with foreign countries, but also repudiated her national debt. She consented to pay only one third of that debt, and that from motives of political expedience. This was the ‘Tiers consolidé’, the interest of which did not begin to be regularly paid until the beginning of the nineteenth century. This practice, which has been elevated to the rank of doctrine by eminent legal authorities, has been followed almost universally by Governments born of a revolution or a war of liberation. The United States repudiated the treaties of its predecessors, England and Spain.”

On the basis of historical precedents, Chicherin held that Soviet Russia was within her rights to nationalize foreign owned property on Russian territory: “The Governments of States victorious during the recent war seized the debts of nationals of vanquished States in their own territory and abroad. Russia therefore cannot be compelled to assume any responsibility towards foreign Powers and their nationals for the cancellation of public debts and the nationalization of private property.”

Chicherin argued: “Thus, from the point of view of the law Russia is in no wise obliged to pay the debts of the past, to restore property, or to compensate their former owners. Nor is she obliged to pay other indemnities for damages suffered by foreign nationals, whether as a result of legislation adopted by Russia in the exercise of her sovereignty, or as a result of the revolutionary events.”

But “Nevertheless, in a spirit of conciliation and in order to arrive at an understanding with all the powers, Russia has accepted” to recognize a part of the debt. Chicherin showed his profound understanding of jurisprudence in insisting:

“Practice and theory agree in imposing the responsibility for damages caused by intervention and blockade upon the governments which instituted them. Without citing other cases, we shall limit ourselves to recalling the decision of the Court of Arbitration at Geneva of September 14th 1872 condemning Great Britain to pay to the United States $15.5 million dollars for the damages caused to that country by the privateer ‘Alabama,’ which in the civil war between the North and the South gave help to the latter.

“The intervention and the blockade of the Allies and neutrals against Russia constituted an official act of war on their part. The documents published in Annex 2 of the first Russian Memorandum prove with evidence that the chiefs of the counter-revolutionary armies were such only in appearance and that their real commanders were foreign generals sent especially for the purpose by certain powers. These powers not only took direct part in the civil war, but were its authors.”

In an annexed document, as Alexander Sack reports, “the Soviets contended that the foreign Powers which participated in the intervention against them in 1919-1920 were liable to pay for losses which Russia suffered as the result of the civil war and revolution. The Soviet delegation presented to the Conference a bill of such losses, which by far exceeded, according to their computation, all the claims of the Powers and their nationals against the Soviet government.”

In the final plenary conference, Lloyd George, the British Prime Minister, made a revealing reply:

“There is a real sympathy for Russia’s condition. If Russia is to get help, Russia must not outrage the sentiments — if they like, let them call them the prejudices — of the world. … what are these prejudices?

“I will just name one or two, because they were all trampled upon in the Memorandum of May 11th. The first prejudice we have in Western Europe is this, that if you sell goods to a man you expect to get paid for them. The second is this, that if you lend money to a man and he promises to repay you, you expect that he will repay you. The third is this: you go to a man who has already lent you money, and say, ‘Will you lend me more?’ He says to you, ‘Do you propose to repay me what I gave you?’ And you say, ‘No, it is a matter of principle with me not to repay.’

“There is a most extraordinary prejudice in the Western mind against lending any more money in that way. It is not a question of principle. I know the revolutionary temper very well, and the revolutionary temper never acknowledges that anybody has got principles, unless he is a revolutionary. But these prejudices are very deeply rooted; they are rooted in the soil of the world; they are inherited from the ages; you cannot tear them out.…

“And if you are writing a letter asking for more credits, I can give one word of advice to anybody who does that. Let him not, in that letter, enter into an eloquent exposition of the doctrine of repudiation of debts. It does not help you to get credits. It may be sound, very sound, but it is not diplomatic.… I do implore you, as a friend of Russian peace, as a friend of co-operation with Russia, as one who is in favour of going to the rescue of those great and gallant and brave people, I implore the Russian Delegation, when they go to The Hague, not to go out of their way to trample upon those sentiments and principles which are deeply rooted in the very life of Europe.”(25)

Chicherin, after deploring that he had been “prevented from submitting to the Conference the question of disarmament,” responded to Lloyd George: “The British Premier tells me that, if my neighbour has lent me money, I must pay him back. Well, I agree, in that particular case, in a desire for conciliation; but I must add that if this neighbour has broken into my house, killed my children, destroyed my furniture and burnt my house, he must at least begin by restoring to me what he has destroyed.”(26)

It must be particularly noted that during the negotiations on other points of the agenda the Soviet delegation had regularly called for decisions to be taken in favor of a general disarmament. France violently refused that the matter even be discussed; it was out of the question to reduce spending on armaments. Of course, this policy was very far from the feelings of the French people but there was a right-wing belligerent government that directed its anger against Germany as well as against Russia (not to mention the colonized peoples).

After the failure of the Genoa negotiations, the host states and Russia agreed to meet again a month later at The Hague to find a last-chance agreement. The meeting, held on 20 July 1922, was also a failure. France and Belgium, now supported at a distance by Washington, which was absent, hardened their positions still further.(27)

Debt Repudiation Ends with Success

Before the Genoa conference, Soviet Russia had managed to sign bilateral treaties with Poland, the Baltic Republics, Turkey and Persia. More importantly, it had managed to sign a trade agreement with the United Kingdom. Signed in 1921, this agreement had sanctioned the Soviet laws of nationalization before UK courts and this meant that companies that traded with Russia no longer ran the risk of getting into trouble.(28)

It might have been anticipated that the failure in 1922 of the conferences at Genoa and The Hague would result in the capitalist powers adopting a more intransigent position towards Moscow. In fact, the opposite occurred. The Soviet government had obviously been clever in its maneuvers. The various capitalist countries all considered separately that they had to sign agreements with Moscow, since the Russian market provided a significant outlet and the country had lots of natural resources. Under the pressure of local private companies, every capital was keen to sign an agreement with Moscow in order to prevent other powers from seizing the opportunities offered by the Russian market.

In 1923-24, despite the failure of the Genoa conference, the Soviet government was recognized formally by the UK, Italy, the Scandinavian countries, France, Greece, China and a few others. In 1925, Japan also recognized the Soviet government.

Paris drastically reduced its demands. In France, a decree issued on 29 June 1920 had established a special commission for the settlement of Russian affairs that was “to liquidate and recover all funds from the former Russian State, whatever their origin.” The French government cancelled this commission six days before it recognized the Soviet government on 24 October 1924. This truly was a victory for Moscow.

A few months earlier the UK Labour government had signed an agreement with the USSR through which Britain accepted Soviet claims for compensation for damages resulting from British intervention in the civil war between 1918 and 1920. [30] The British government even promised that under certain conditions it would guarantee the issue of a Soviet loan bond on the London financial market.

Less than two years after the failure of the Genoa Conference, even though the USSR maintained its repudiation of debts, the British government was about to guarantee a Soviet loan! On 24 September 1924 the Soviet leader Kamenev could write in Pravda: “The treaty with England is an effective basis for the express recognition of our nationalization of land and of industry, of the repudiation of debts and of all other consequences of our revolution.”(29)

From 1926, in spite of debt repudiation, European private banks and governments started to grant loans to the USSR. Eventually, under the presidency of Franklin D. Roosevelt, the United States recognized the USSR formally in November 1933. On 13 February 1934, the U.S. government established the Export and Import Bank with a view to financing trade with the Soviet Union. A few months later, not wanting to be excluded from the Soviet market, France also offered loans to the USSR for French products.(30)

Degeneration and Tragedy

There is not room to discuss the later development of the Soviet regime: the gradual smothering of any criticism, the regime’s bureaucratic and authoritarian degeneration,(31) disastrous policies in the fields of agriculture (notably the forced collectivization under Stalin) and industry, Stalin’s enforcement of terror in the 1930s.

What happened to the members of the delegation representing the Soviet government in Genoa illustrates the tragic development of the regime and the consequences of Stalin’s policy. It consisted of George Chicherin, Adolph Joffe, Maxim Litvinov, Christian Rakovsky, Leonid Krasin. Apart from the last one who died of illness in London in 1926, all the others suffered political disgrace.

George Chicherin was disgraced in 1927-1928.

Adolph Joffe committed suicide on 16 November 1927, leaving a farewell letter to Trotsky which was a true political testament. His funeral was one of the last “authorized” big public demonstrations against Stalin.

Christian Rakovsky had been Trotsky’s comrade already before the First World War and had opposed bureaucracy from the early 1920s; he was executed by the GPU (state political administration) on Stalin’s order in 1941.

On 3 May 1939 Maxim Litvinov was violently dismissed from his position: the GPU raided his ministry, his assistants were beaten and interrogated. Since Litvinov was a Jew and a fervent partisan of collective security, replacing him with Molotov increased Stalin’s power and facilitated negotiations with the Nazis. These resulted in the German-Soviet non-aggression pact in August 1939 with its tragic consequences. After the Nazi attack on the USSR in 1941, Litvinov was back in an official position.

Such tragic evolution shows once again that repudiating odious debt is not enough to solve the many problems affecting society. There is no doubt about that. For debt repudiation to be useful, it must be part of a consistent set of political, economic, cultural and social measures that make it possible to move towards a society that is liberated of all the various forms of oppression it has suffered under for millennia.

Conversely, many countries can hardly consider launching this kind of transition while attempting to repay odious debts inherited from the past. We can find lots of illustrations in the course of history, and the latest is the subjection of Greece to her creditors’ impositions since 2010 and the terrible consequences of the Greek government’s capitulation in July 2015 as it insisted on repaying the debt in order to obtain debt relief.

Epilogue and Lessons for Today

Six years after the dissolution of the USSR, Boris Yeltsin in 1997 signed an agreement with Paris to put an end to litigation over Russian bonds. The $400 million France received from the Federation of Russia in 1997-2000 are a mere one percent of the amounts claimed from Soviet Russia by the French creditors represented by the State.(32)

We should also stress the fact that the agreement between Russia and the UK signed on 15 July 1986 made for a 1.6% compensation of the bonds’ updated value. Such very low compensation rates again indicate that a country can indeed repudiate its debts without major consequences.

In August 1998, as it was affected by the Asian crisis and the consequences of capitalist restoration, Russia unilaterally suspended its payment of the debt for six weeks. Its external public debt amounted to $95 billion, $72 billion of which to private foreign banks ($30 billion to German banks and $7 billion to French banks, including Crédit lyonnais) and the remainder mainly to the Paris Club and the International Monetary Fund.

Complete suspension of payment followed by a partial suspension over the following years led the various creditors to agree to a haircut that varied between 30 and 70%. Russia, which was going through a recession before suspending payment, experienced an annual growth rate of about 6% afterwards (1999-2005). Joseph Stiglitz, who had been the World Bank’s chief economist between 1997 and 2000, points out:

“Empirically, there is little evidence in support of the position that a default leads to an extended period of exclusion from the market. Russia returned to the market within two years of its default which was admittedly a ‘messy one’ involving no prior consultation with creditors… Thus, in practice, the threat of credit being cut off appears not to be effective.”(33)

Two sentences to sum up: it is possible to repudiate or unilaterally suspend debt payment and to stimulate the economy. This is not enough to solve all problems, but in some circumstances it can be both useful and necessary.


      back to text
    2. Translators’ note: the passages quoted from Trotsky’s works are left as in the original translation.
      back to text
    3. Trotsky wrote this in 1930. back to text” TARGET=””>
      back to text
    4. Leon Trotsky, 1930, History of the Russian Revolution, Haymarket Books, Chicago, 2008, Chapter 7.
      back to text
    5. In 1917, Russia still used the Julian calendar, which is about 13 days “behind” the Gregorian calendar adopted in 1918 and which corresponds to the Western calendar. So the revolution of February 1917 actually occurred on the international day of struggle for women’s rights: March 8 in the current calendar. Similarly, the October Revolution took place on November 7. In the rest of the text, the dates correspond to the current (i.e. Gregorian) calendar.
      back to text
    6. Alexander Fyodorovich Kerensky (1881-1970), lawyer, Laborist (his party was called Trudovik) headed the provisional government in 1917.
      back to text
    7. The government was an alliance of the Bolshevik Party and the leftwing Socialist Revolutionaries.
      back to text
    8. Edward H. Carr. 1952. The Bolshevik Revolution 1917-1923, vol 2. The Macmillan Company; First edition (1952).
      back to text
    9. In January-February 1918, President Wilson adopted an apparently benevolent public attitude towards Soviet Russia. See especially point 6 of his declaration in 14 points to the US Congress on 8 January 1918. However, in the end Wilson did not give any aid to the Soviets.
      back to text
    10. See Edward H. Carr. 1952. A History of Soviet Russia, The Bolshevik Revolution (1917-1923) vol. 3, Norton Paperback Editions, New York, 1985 (Macmillan, 1953) chapter 21, 12-13, note 3.
      back to text
    11. See in particular
      back to text
    12. Lloyd George reported these talks in his memoirs: Lloyd George, War Memoirs, IV, 1934, 2081-2107. See Carr, op. cit., 1952, vol. 3, chapter 22.
      back to text
    13. Carr, vol. 3, chapter 28, 308.
      back to text
    14. Carr, vol. 3, chapter 23, 126-7.
      back to text
    15. Carr, Vol. 3, 308.
      back to text
    16. On the Russian Civil War, see among other scholarly studies Evan Mawdsley, The Russian Civil War, Pegasus Books, 2007.
      back to text
    17. The New York Times, 2 April 1921 quoted by Alexander N. Sack, “Diplomatic Claims against the Soviets (1918-1938).” in New York School of Law Contemporary Law Pamphlets Series 1 No.7, N Y University Quarterly Review 253, 1938-39.
      back to text
    18. Alexander N. Sack, “Diplomatic Claims against the Soviets (1918-1938),” op. cit.
      back to text
    19. Carr, op. cit., vol. 3, 311-312.
      back to text
    20. Founded in 1863, the Crédit lyonnais is best known for the scandal surrounding its bailout by the French state at the end of the 20th century. More or less bankrupt since the 1990s, after the mortgage crisis in the property sector, the bank was nationalized and recapitalized before being taken over by the Crédit agricole in 2003. The bailout is thought to have cost tax-payers 14.7 billion euros.
      back to text
    21. Landon-Lane J., Oosterlinck K., (2006), “Hope springs eternal: French bondholders and the Soviet Repudiation (1915-1919).” Review of Finance, v.10 #4, 507-535.
      back to text
    22. When the Conference of Genoa took place, the Union of Soviet Socialist Republics did not yet exist. It was founded in December 1922 and officially dissolved in December 1991. At the Conference of Genoa, the Soviet delegation officially represented the Russian Soviet Federative Socialist Republic, which we have abbreviated in the present text to “Soviet Russia.”
      back to text
    23. Carr, op. cit., vol. 3, 376.
      back to text
    24. Treaty of Rapallo, 16 April 1922, Article 2, see
      back to text
    25. J. Saxon Mills, The Genoa Conference, London: Hutchinson, 1922, pp. 277-8:
      back to text
    26. Idem., 284.
      back to text
    27. Carr, vol. 3, 436-440.
      back to text
    28. Article 9 of the Anglo-Soviet trade agreement stipulated: “The British Government declares that it will not initiate any steps with a view to attach or to take possession of any gold, funds, securities or commodities not being articles identifiable as the property of the British Government which may be exported from Russia in payment for imports or as securities for such payment, or of any movable or immovable property which may be acquired by the Russian Soviet Government within the United Kingdom.”
      back to text

On this topic see also E. H. Carr, The Bolshevik Revolution, vol. 3, 286-

  1. back to text
  2. Sack, “Diplomatic claims Against the Soviets (1918-1938).” in New York University Law Quarterly Review 15 (1937-1938), 524-5.
    back to text
  3. Sack, “Diplomatic claims Against the Soviets (1918-1938).” New York University Law Quarterly Review 16 (1938-1939), note 209, 270.
    back to text
  4. On this issue, see the article in French, Eric Toussaint, “Lenin and Trotsky confronting the bureaucracy – Russian revolution and transitional societies.” Published Saturday 21 January 2017
    back to text
    back to text
  6. Stiglitz in Barry Herman, José Antonio Ocampo, Shari Spiegel, Overcoming Developing Country Debt Crises, Oxford University Press 2010, 49.
    back to text

July-August 2018, ATC 195