Russia has defaulted on its overseas debt for the first time since 1918 after it missed a deadline on Sunday. Russia which is engaged in a conflict with Ukraine since late February claimed it has all the funds and resources to continue this conflict. Even after sanctions were imposed by the west on its international funds, it continued to engage in the conflict rather than made it more intense. Just recently, Russia took over Ukraine’s Sievierodonetsk city meaning the city is now fully under Russian occupation. Kremlin has responded against the default designation, saying “It has the money to meet the obligations and is been forced into non-payment by the west shutting down the payment routes to international creditors” suggests a report. Russia is required to make a $100M payment to its international creditors. They have the money to make this payment and willing to do so, but the sanctions imposed on Russia have made it impossible to the money to its international creditors.
The payment was due on 27 May, though Russia was given a grace period of 30 days, which expired on June 27. Russia claims they have sent the money to Euroclear, a bank that would then distribute the payment to its investors. But the money has been stuck there and the creditors have not received it, according to the reports. As the money had not arrived even after the 30 days grace period which expired on Sunday evening, hence it is declared as a default. The bank Euroclear wouldn’t say if they have blocked the payment, but they said that it abides by all the sanctions imposed. The Russian Finance Minister, Anton Siluanov called the situation “a farce”, last month he also stated that “ this situation is artificially created by an unfriendly country, will not have any effect on Russians.” The Finance minister also said that “with billions of dollars pouring every week into state coffers from energy exports, despite the grinding conflict in east Ukraine, he reiterated that the country has the means and the will to pay, anyone can declare whatever but the people who understand what’s going on knows that this is no way a default”
The situation where Russia is being called on its foreign debt default leaves a mark on its prestige. The last time Russia faced a financial crisis concerning foreign creditors was in 1918 when the Bolsheviks under Vladimir Lenin rejected the nation’s staggering Czarist-era debt load. The country was rocked by the rouble crisis during the chaotic end of Boris Yeltsin’s regime. At the time Moscow failed to keep up payments on its domestic bonds but managed not to default on its overseas debt.
The Russian government has said it wants to make all of its payments on time, and up until now, it had succeeded. About $40bn of Russia’s debts are denominated in dollars or euros, with around half held outside the country. The default seemed inevitable when the US Treasury decided not to renew the special exemption in sanctioning rules allowing investors to receive interest payments from Russia, which had expired on 25th May. Kremlin appeared to accept this inevitability as they stated that all future debt payments would be made in roubles through a Russian bank, the National Settlements Depository, even when it was said that should be in dollars or other international currencies. Finance Minister said that there are two major reasons why creditors won’t be able to receive payments – he said. “The first is that foreign infrastructure – correspondent banks, settlement and clearing systems, depositories – are prohibited from conducting any operations related to Russia. The second is that foreign investors are expressly prohibited from receiving payments from us.”
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In any case, it is unclear if investors will use the new tool and whether existing sanctions would even allow them to send money.
