Russia resists debt default despite severe sanctions

Russia has the money, but sanctions prevent regular and easy debt payments (AFP)

The tightening of the screws against Russia with the sanctions imposed by Western countries, in response to its invasion of Ukraine, is likely to lead to a later failure of its debt, but Moscow appears to be coherent in this regard until Friday, while information indicates that the payment is due today, amounting to $ 71 million. It was possibly paid in currencies held outside U.S. financial institutions, before Washington canceled an exemption this week that allowed it to pay off its foreign debt in dollars.

But with other payments payable at a later date, the world will most likely face the first case of a country defaulting against its will due to international sanctions, and not because it did not have the necessary funds to do not pay.

So, what is a default on sovereign debt?

A country is considered to be in default when it does not meet its financial obligations, either to another country or international financial institutions such as the International Monetary Fund or the World Bank, or to investors who have bought its bonds. The default is considered partial if part of the debt is not paid.

A government can declare its default by declaring that it will not repay its debt, as Sri Lanka did last month, and as Russia did in 1998 with regard to its internal debt.

A default can also be declared by a rating agency after the end of an automated 30-day grace period, after the payment deadline. But in the case of Russia, the three rating agencies stopped covering the country in response to Western sanctions.

A failure can be officially declared by a private lender who publicly states that a country has not made the payment, or by the International Swaps and Derivatives Association (ISDA), whose non-payment decision may result in the exemption of CDS insurance payments. ), which is a form of debt repayment insurance.

What is the situation with Russia’s debt?

Until this week, a release from U.S. sanctions has allowed Russia to make payments to mortgagees in dollars, but the Biden administration has withdrawn the waiver. Russia, however, on Wednesday reiterated its willingness to pay off all its debt in rubles, but the terms of some bonds specify that payments are in dollars or other currencies.

On Friday, an interest payment of $ 71 million is payable, and according to a professor at Cannes Business School Selim Souissi, the terms of the bonds “do not include payment in rubles, only in dollars, euros, pounds sterling and Swiss francs.” A ruble payment can be considered a non-payment, said an expert from the credit rating agency Fitch.

The payment was made possible before the waiver of US sanctions was withdrawn. The Russian Ministry of Finance announced in a statement last week that it had transferred the amounts for distribution to bondholders. “The obligation to pay for the bonds of the Russian Federation has been fully complied with, according to Eurobond documents by the Russian Ministry of Finance,” it said.

It added that a second payment of 26.5 million euros due on Friday had also been made, although the payment could be made in rubles under the terms of the bonds.

Three interest payments totaling just under $ 400 million are due at the end of June, according to data compiled by Bloomberg. Some of those bonds can only be paid for in dollars.

In total, the Russian government must make 14 payments by the end of the year.

Russia has money, but sanctions make it harder to pay off debt

Russia has the money to pay and wants to pay it, but it can not because of Western sanctions.

Experts say this is the first case of its kind. When Argentina failed in 2014, he had the money, but he refused to pay the hedge funds that refused to accept a deal because it would have undermined the entire renegotiation of his debt.

The Russian Ministry of Finance has threatened to go to court if Russia is declared default, to prove that it has tried to repay creditors.

A failure usually means that a country loses its ability to borrow on the international capital markets for several years until it regains investor confidence.

In this case, the international sanctions imposed prevent Russia from borrowing. While creditors’ confidence in Russia’s ability to pay is not currently an issue, it could become an issue if sanctions push the country’s economy into a severe recession.

Russia may be able to build more ships to export grain

On the other hand, Russian Agriculture Minister Dmitry Patrushev said at a conference today, Friday, that Russia might start building more ships to export grain, while Russia is competing with the European Union and Ukraine for the Middle East. and supply Africa with wheat.

Moscow continues to execute despite logistical problems and payments caused by Western sanctions over what Russia calls its “special military operation” in Ukraine.

(AFP, Reuters)

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