Image Source: Outlook India
Russia has missed a deadline and defaulted on its debt for the first time since 1998. Despite having the financial means to make the $100 million payment due on Sunday, Russia was unable to deliver the funds to its international creditors due to sanctions.
The nation had been determined to prevent the default since it would have been a significant hit to its prestige.
Dmitry Peskov, a spokesman for the Kremlin, said that declarations of a default “were absolutely unfounded.” He added that an intermediary bank had delayed the money and that the reserves had been “illegally” stopped.
Due to sanctions, Russia has stopped paying on its international bonds, and this has caused Russia to be cut off from the global financial system. However, it is not expected that the situation, which the Russian finance minister called “a farce,” will have an immediate effect.
Chris Weafer, CEO of the Moscow-based company Macro Advisory, claims that Russia doesn’t require external financing because it already makes money from pricey commodities like oil. He asserted that a “legacy” issue would arise if the situation with Ukraine and the international sanctions improved. The $100 million interest payment was due on May 27. Russia claims that the money was transferred to a bank called Euroclear, which subsequently dispersed it among investors. Bloomberg News reports that this payment was kept there and has not yet been given to the creditors.
Meanwhile, according to two sources cited by the news agency Reuters, certain Taiwanese bondholders of Russian bonds denominated in euros have not received interest payments. Because the money was not received within 30 days of the due date, which was Sunday night, it is therefore considered a default.
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Euroclear stated that it complied with all regulations placed in place due to Russia’s invasion of Ukraine while refusing to disclose if the payment had been suspended.
Russia denies skipping a payment on the debt. Moscow had already made the payments that were due in May; thus, it was “not our problem,” according to Kremlin spokesman Dmitry Peskov, that Euroclear decided to withhold them owing to the sanctions.
Mr. Weafer claims that as a result of the default, a sizable percentage of Russia’s debt will be reimbursed. Approximately half of Russia’s $40 billion in debt is held abroad and is in the form of dollars or euros.
The last time there was a debt default in Russia was in 1998, when Boris Yeltsin’s government was violently deposed, and the rouble crisis rocked the country. At the time, Moscow defaulted on the part of its foreign debt and missed payments on its domestic bonds.
It has seemed as though Russia will eventually enter default ever since the United States and the European Union first imposed sanctions in response to the invasion of Ukraine. Due to them, Russia had less access to the international financial networks that handled payments from foreign investors to those in Russia. Nevertheless, the Russian government has, up to this moment, successfully complied with its pledge to make all of its payments on time.
Default became inevitable when the US Treasury decided not to renew the special exception in the sanctions rules allowing investors to receive interest payments from Russia, which ended on May 25.
The Kremlin also appeared to have accepted this unavoidable fact when it declared on June 23 that all future debt payments would be made through a Russian bank, the National Settlements Depository, even when contracts call for them to be made in dollars or other foreign currencies.
While all was going on, Mr. Weafer, who has his headquarters in Moscow, asserted that despite sanctions and Western companies fleeing Russia, most aspects of daily life were still going on as usual.