Russia has officially defaulted on its foreign debt for the first time since 1918!
Russia Officially Defaults On Foreign Debt!
Russia was due to pay a $100 million interest payment on May 27, 2022; but creditors did not receive it 30 days later.
Russia says they sent the money to the Euroclear bank, which would distribute payments to its creditors. However, those payments were not made – Euroclear wouldn’t say if they were blocked, but would only say that it is adhering to all sanctions.
The US Treasury had earlier decided not to renew the special sanction exemption allowing investors to receive interest payments from Russia, letting it expire on May 25, 2022.
Russia could have paid that interest before the interest payment exemption expired, but opted not to. It has so far managed to make its payments on time, despite sanctions kicking in after Russia invaded Ukraine in February 2022.
But after missing that June 26 deadline on Sunday, Russia officially defaulted on that payment – their first foreign debt default since 1918, and their first default of any kind since 1998.
- In 1918, Vladimir Lenin refused to pay the outstanding debts of the Russian Empire during the Bolshevik Revolution.
- In 1998, the Russian. government was rocked by the rouble crisis, and defaulted on domestic bonds, but managed to pay its foreign debt.
Russia To Pay In Roubles, To Avoid Future Defaults On Foreign Debt
Russia called the default artificial, because it has the money to pay its debts, but sanctions have frozen its foreign currency reserves held abroad.
The Kremlin announced on 23 June 2022, that it would make all future debt payments in roubles through a Russian bank – the National Settlements Depository, even for bonds that are denominated in dollars or other foreign currencies.
The Russian Finance Ministry said that it would offer “the opportunity for subsequent conversion into the original currency” as a way to avoid future debt defaults.
While embarrassing to the country, and would make it expensive or difficult to borrow money in the future, this technical default does not have a significant effect on Russia right now.
For one thing, Russia is already barred by sanctions from borrowing in Western markets. Russia is also not interested in borrowing foreign money, thanks to a healthy influx of money from its sale of oil and gas.
In fact, Russia had been preparing for such an eventuality by paying down its foreign debt since it annexed Crimea in 2014.
All it does at the moment is ensure that Vladimir Putin goes down in history as only the second Russian leader to be responsible for a foreign debt default.
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