Russia defaults on foreign debt for the first time since 1917

For the first time since 1917, Russia has defaulted on its repayments. The current war between Russia and Ukraine has already brought multiple sanctions on Russia; and thus making it difficult to repay the loans.

 

The payments in question are $100 million in interest on two bonds, one denominated in U.S. dollars and another in euros, which Russia was due to pay on May 27. The payments had a grace period of 30 days, which expired on Sunday, reported Reuters.

 

However, The Kremlin has repeatedly said there are no grounds for Russia to default but is unable to send money to bondholders because of sanctions, accusing the West of trying to drive it into an artificial default, Reuters report said.

 

Russia owes close to 40 billion dollars in foreign debt. While the reports suggest Moscow's inability to repay its debt, the Russian government blames sanctions. It must be noted that before the start of the war, Russia had more than 600 billion dollars in foreign currency and gold reserves. Much of it is now frozen as it was stuffed overseas.

Formally, the way to declare default is if 25% or more of bondholders say they didn't get their money. Once that happens, provisions say all Russia's other foreign bonds are also in default, and bondholders could then seek a court judgment to enforce payment, said the AP report.

 

The AP report further added that, In normal circumstances, investors and the defaulting government would typically negotiate a settlement in which bondholders are given new bonds that are worth less but that at least give them some partial compensation.

 

But sanctions bar dealings with Russia's finance ministry. And no one knows when the war will end or how much defaulted bonds could wind up being worth.

 

The sanctions on Russia have impacted the economy of the nation as many countries have closed their businesses. Default would further lead to isolation and disruption.

 

Earlier, Russia's Finance Minister Anton Siluanov said on May 18 that Moscow will service its external debt obligations in rubles if the United States blocks other options and will not call itself in default as it has the means to pay, reported Reuters.