Russia is nearing its first default since the October Revolution more than 100 years ago. A deadline for paying $100 million has expired. The case is very complicated.
Moscow: The Kremlin on a cloudy full moon night
On Sunday, a deadline to pay $100 million in interest on two foreign currency bonds – $29 million for a 2036 euro bond and $71 million for a 2026 dollar bond. Actually, Russia was supposed to make the payments on May 27, but it didn't happen. A grace period of 30 days then began, which has now ended. Since no exact deadline is given in the bond prospectus, the lawyers believe that it is possible that Russia will have until the end of Monday to service its creditors.
However, there is currently little sign that investors are getting their money. Since the February 24 invasion of Ukraine, sweeping sanctions have locked Russia out of the global financial system. Since then, Moscow has struggled to make payments on outstanding bonds totaling $40 billion, despite billions in foreign exchange reserves.
The Kremlin has repeatedly stated that it sees no reason for default. However, due to the sanctions, it is not possible to transfer money to the bondholders. The West is therefore accused of trying to force the country into artificial insolvency.
President Vladimir V. Putin insists that his country is far from insolvent
Rubles instead of dollars?
Russia's Finance Minister Anton Siluanov last week described the impending default as a “farce” designated. Anyone who understands what's going on knows that it's not a matter of default.
The background to the current case is complicated and seeks historical comparison. Russia emphasizes that it is economically able and willing to service its debts. However, this is opposed to severe sanctions, primarily by western countries, which were taken in response to Russia's war against Ukraine.
As a result, Moscow can neither access the majority of its financial reserves in western countries nor pass on domestic reserves to western creditors , although Moscow obviously wants to service its debts and could do so given the existing reserves.
The payment in the Russian national currency ruble is also disputed. Actually, interest payments on foreign debt are usually provided in US dollars or euros. However, since Russia no longer has access to its foreign exchange reserves in the West due to sanctions, payments are to be made in the Russian currency from now on. President Vladimir Putin signed a corresponding decree on Wednesday.
Moscow is not bankrupt
Basically, a state is considered insolvent if it can no longer service its debts, i.e. has problems with interest payments or debt repayments. Typically, such problems arise when governments have spent beyond their means and are over-indebted or have otherwise lost creditworthiness and have a liquidity problem. Typical examples are the earlier state bankruptcies of Argentina or the financial problems of Greece during the euro crisis from 2010. But the case of Russia is completely different.
Due to its financial situation, Russia is actually not a case for state bankruptcy . The country has significant financial resources at home and abroad. The main source of income is the large amounts of raw materials that Russia has sold abroad over the years – and continues to sell. In return, the country received foreign exchange, i.e. foreign currency.
As long as Russia, like here near Usinsk, produces oil and sells it at high prices, Putin's empire has enough money
In addition, Russia is not heavily indebted by international comparison: At around 20 percent of economic output, the debt ratio is significantly lower than in many Western industrialized countries.
Who decides when a country is bankrupt?
The three major credit rating agencies Standard & Poor's, Moody's and Fitch are paid by governments and lenders to assess borrowers' creditworthiness. In the case of Russia, however, they are left out because European Union sanctions prohibit them from assessing the financial situation.
There is also the international investors' committee CDDC, which consists of large banks. In the event of payment problems, it decides whether credit default insurance (CDS) is due and whether the buyers of such insurance receive compensation. Such a case comes at least close to a default and thus a state bankruptcy.
dk/bea (dpa, rtr)