Russia faces debt default as sanctions block international payments
War sanctions imposed since the invasion of Ukraine in February have blocked Russian attempts to fulfil payments and access international financial infrastructure.
On May 25 the US Treasury let a key sanctions exemption expire, meaning US-based investors would no longer be allowed to receive Russian payments.
Russia said it would pay its debts in rubles and accused Washington of engineering an artificial default.
A default could trigger legal action from creditors, hammer Russia’s financial credibility and complicate future access to global markets, if sanctions are eased, further increasing borrowing costs.
Russia says it is willing to pay but payments are blocked by sanctions.
Approximately $40 billion of Russia’s debts are denominated in dollars or euros, with around half held internationally.
It would be the first default since 1998 during the turmoil at the end of Boris Yeltsin’s presidency.
The $100-million interest payment was due on May 27 and Russia says it was sent to Euroclear, a bank which would normally distribute payments to investors.
But the payment was blocked and no investors have been paid. Euroclear said it follows all sanctions.
Default appeared inevitable when the US Treasury did not renew the special exemption in sanctions rules allowing investors to receive Russian interest payments, which expired on May 25.
Russia apparently accepted the inevitability of a default, decreeing on June 23 that all debt payments would be made in roubles through Russia’s National Settlements Depository bank, although contracts specify that payments must be in dollars or other international currencies.
Finance Minister Anton Siluanov was quoted saying by RIA Novosti that no payments would be made for two reasons: “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.”
As Russia wants to pay and has the reserves to do so, Siluanov said, denying it would be a genuine default, when a government refuses to pay or cannot find the money. “Everyone in the know understands that this is not a default at all. This whole situation looks like a farce,” Siluanov reportedly said.
Moscow’s financial centre has been squeezed out of global financial institutions. Picture credit: Pixabay