MOSCOW—Holders of Soviet bonds first sold in Communist leader Leonid Brezhnev’s final year are getting in France what they can’t get from President Vladimir Putin: money.

The European Court of Human Rights in Strasbourg ordered Russia last month to pay Yuriy Lobanov, a septuagenarian from the Ivanovo region near Moscow, 37,150 euros ($46,497 U.S.) in compensation for the 1982 notes he held, or about 140 times the average monthly pension. Mariya Andreyeva, a 95-year-old survivor of the Nazi blockade of Leningrad, won a preliminary 4,300 euros on the bonds, which doubled as lottery tickets.

The securities are part of the 25 trillion rubles ($785 billion), equal to almost half of Russian economic output, the government says it still owes the public from lost Soviet savings. Putin is stalling, most recently signing an order in April to halt payments on the notes until at least 2015. Now, armed with court rulings, veteran speculators are joining pensioners in seeking to cash in.

“This all should have been settled back in the 1990s,” said Boris Kheyfets, a Soviet debt specialist at the Russian Academy of Sciences’ Institute of Economics in Moscow. “How do you assume a debt that huge? It would collapse everything immediately.”

Chic Sedan

Soviet authorities began selling the 20-year certificates in 1982 for 25, 50 or 100 rubles, partly to redeem earlier bonds and partly to sop up cash from a command economy with few consumer goods. The State Domestic Lottery Bonds offered a token 3 per cent interest and a chance at payouts of as much as 10,000 rubles, Kheyfets said. The top winners were entitled to a “chic” Volga sedan, while second prize was a Zhiguli car.

Unlike other former Soviet republics that settled similar debts in the 1990s at a fraction of what was lost, Russia pledged to cover the whole amount. President Boris Yeltsin signed a law in 1995 ordering the government to restore savings via bank deposits and Soviet bonds based on what those holdings could have purchased in 1990. Payments started in earnest during Putin’s first term, when surging oil prices pushed the budget into surplus. Now Putin is back in the Kremlin for a third term and the budget is barely breaking even.

“Clearly, implementing this plan to restore the public’s savings would impose exorbitant obligations on the federal budget,” the Finance Ministry said in its most recent debt strategy report, released a year ago. “Were that actually to happen, the state would be deprived of the ability to pay for other expenses for an extended period of time.”

‘Nothing Left’

In the 1990s, Russia was passing laws without thinking of how they’d be funded, Putin told a meeting of regional human rights officials Aug. 16. Repaying all lost savings immediately would mean “nothing left to pay salaries to soldiers, to doctors, to teachers,” Putin said, according to a transcript on the Kremlin’s website. Russia should continue to pay what it can to the most elderly people who lost savings, he said.

The Finance Ministry’s plan to compensate the most elderly “victims” is the best approach, and gradual payments should be continued, Putin said. “This is something we’ve inherited from the past, but we need to do something about it.”

The government has earmarked 50 billion rubles in this year’s budget to repay lost deposits, and the same amount for 2013 and 2014. Savers who die are also eligible for 6,000 rubles, less than $200, in funeral costs.

“We make the payments every year, but it’s a miserly amount,” Kheyfets said. “I guess that’s just how it’s going to be until the people die.”

Tsarist Debt

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 honours all judgments by the European Court of Human rights, adding that the Lobanov ruling only applies 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 10-fold, Vladimir Osakovskiy, chief economist at Bank of America Merrill Lynch in Moscow, said today in an emailed comment. Earlier settlements suggest Russia will find a way to avoid damage to its credit ratings or sovereign debt, he said.

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“Back in 1997, Russia settled outstanding tsarist bonds in France for $400 million, which was less than 1 per cent of foregone purchasing power in nearly 100 years of foregone interest,” he said. “We expect similar settlement in this case as well.”

Shadow Economy

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 didn’t mention the notes or estimate 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 so-called promissory rubles, essentially increasing their face value by 40 per cent. Later legislation pegged their value to a basket of consumer goods and ensured they would accrue interest of at least 9 per cent. The government last valued the promissory ruble in 2003, at 32.34 current rubles, a figure cited by the court in the Lobanov case. The ruble fell 0.5 per cent to 32.02 per dollar by the close in Moscow.

For sale on eBay

Lobanov offered a “very sound” valuation, leaving little room for rebuttal, said Vasily Vasilyev, a lawyer at Yukov, Khrenov & Partners 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.com, where 25-ruble 1982 bonds are being offered for $2.85 apiece.

On Russian websites, 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, which Russia isn’t legally obligated to repay.

Russia probably will only resume payments if a group with enough political clout starts amassing them, said Saleh Daher, managing director at Turan Corp., which has invested in Soviet commercial debt.

“People will make money from this,” Daher said by phone from Boston, where Turan is based. “And I doubt very much that much of it will go to the pensioners or the people who actually had the claims in the beginning.”

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