As of: 04/06/2022 3:22 p.m
For the first time, Russia has paid interest and principal on dollar bonds in rubles. This brings the country closer to a technical default – although it would actually be solvent.
The stalemate over the interest and principal payments due from Russia is entering the next round. For the first time, Moscow made the payments for two foreign currency bonds not in dollars but in rubles. That money can be exchanged for dollars as soon as the Russian Federation regains access to its foreign exchange accounts frozen by the West, the Russian Finance Ministry said in a statement.
“Russia has all the resources it needs to service its debt,” said Kremlin spokesman Dmitry Peskov. “If this blockade continues and payments to service the debt are blocked, they could be made in rubles.”
The Kremlin does not want to touch its own reserves
So far, the US Treasury Department has allowed Russia to make payments to its bondholders from frozen dollar accounts at US banks on a case-by-case basis. It deviated from that on Monday and had blocked the payment of the due $649.2 million. The move was intended to force Russia to tap into its foreign exchange reserves under its direct control.
Apparently Moscow is not ready for this. According to experts, Russia now has 30 days to transfer this money in dollars. Otherwise, the process would become “a formal default by Russia on foreign debts,” as the Russia expert Gerhard Mangott from the University of Innsbruck tweeted.
Would Russia be “broke” if it defaulted?
It is unclear whether such a “formal default” in this unusual situation should actually be described as “state bankruptcy” or “state bankruptcy”. In fact, according to experts, Russia is still solvent.
“Theoretically, a failure situation could be created, but that would be a purely artificial situation,” said Kremlin spokesman Peskov. “There are no reasons for a real default.”
International creditors currently hold a total of 15 Russian Federation bonds with a face value of around $40 billion. The country was prevented from issuing further bonds on Western financial markets as part of the sanctions until further notice. Even if it regained access to the financial markets, Russia would not be able to borrow fresh money there until its creditors are fully satisfied and all legal disputes arising from the impending default are settled.