Image Source: Outlook India
After missing a crucial deadline, it’s thought that Russia has defaulted on its debt for the first time since 1998. Even though Russia has the resources to fulfill a $100 million payment due on Sunday, sanctions prevented Russia from delivering the money to its international creditors.
The default would have been a serious blow to the country’s reputation, and the nation had been determined to avoid it. Therefore, statements of a default, according to Kremlin spokesperson Dmitry Peskov, “were completely unwarranted.”
He further stated that the reserves had been “illegally” stopped and that an intermediary bank had withheld the funds. According to the White House,
Russia has stopped making payments on its international bonds, which blamed sanctions for effectively shuttinRussia off from the world financial system. The situation, which the Russian finance minister referred to as “a farce,” is not anticipated to have an immediate impact.
According to Chris Weafer, CEO of Moscow-based firm Macro Advisory, Russia doesn’t need to raise money abroad because it is profiting from expensive commodities like oil.
But if the situation with Ukraine and the international sanctions improves, he claimed it would lead to a “legacy” problem. On May 27, the $100 million interest payment was due. According to Russia, the funds were transferred to a bank called Euroclear, which would then distribute the funds to investors.
However, according to Bloomberg News, that payment has been held there and has not yet reached the creditors. In the meantime, the Reuters news agency, which quoted two sources, claimed that certain Taiwanese holders of Russian bonds with euros as the unit of currency had not received interest payments.
It is deemed a default because the money was not received within 30 days of the due date, which was Sunday night. While refusing to confirm if the payment had been stopped, Euroclear insisted that it complied with all restrictions put in place as a result of Russia’s invasion of Ukraine.
Russia denied having missed a payment on the obligation. According to Dmitry Peskov, a spokesman for the Kremlin, Moscow had already paid the payments that were due in May, and Euroclear’s decision to withhold them because of the sanctions was “not our problem.”
According to the RIA Novosti news wire, Russian Finance Minister Anton Siluanov acknowledged that overseas investors would “not be able to receive” the payouts. However, he disputed that this amounts to a genuine default, typically when governments refuse to pay or their economies are so fragile that they cannot find the money. Russia wants to pay and has plenty of money to do so.
Normally, countries that have defaulted cannot borrow any additional money, but sanctions have effectively prevented Russia from borrowing in Western markets.
Additionally, it’s estimated that Russia makes $1 billion a day from the export of fossil fuels, and its finance minister, Anton Siluanov, stated in April that the nation had no intentions to take on additional debt. According to Mr. Weafer, a significant portion of Russia’s debt will be repaid as a result of the default.
A little over half of Russia’s $40 billion in debt is held outside of the nation and is denominated in dollars or euros.
The last time Russia experienced a debt default of any kind was in 1998 when Boris Yeltsin’s administration was chaotically overthrown; the rouble crisis shook the nation. Moscow, at the time, missed payments on its domestic bonds and went into default on some of its foreign debt.
Since the United States and the European Union first imposed sanctions in response to the invasion of Ukraine, it has seemed as though Russia will eventually go into default.
These limited the country’s access to the global financial networks that handled payments from investors in other countries to those in Russia. Nevertheless, until this point, the Russian government has successfully adhered to its promise to make all payments on time.
When the US Treasury chose not to extend the specific exception in sanctions laws allowing investors to receive interest payments from Russia, which expired on May 25, default appeared to be unavoidable.
By announcing on June 23 that all future debt payments will be made in roubles through a Russian bank, the National Settlements Depository, even when contracts specify that they should be made in dollars or other foreign currencies, the Kremlin also appeared to have conceded this inevitable fact.
In the meantime, Mr. Weafer, who is headquartered in Moscow, claimed that despite sanctions and Western corporations leaving Russia, life was largely continuing as normal.
