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The last time Russia defaulted on foreign debt was 1918
Russia defaulted on its foreign debt for the first time in more than a century, after failing to meet a Sunday deadline, according to a report.
Russia has the money to pay $100 million in interest and is willing to pay it, but the sanctions imposed on it have made it impossible to pay the amounts to international creditors.
The Kremlin was determined to avoid a default, which would be a major blow to state prestige, and Russia’s finance minister called the situation a “farce”.
For its part, the Kremlin stressed Monday that there was “no basis” to say that Russia had defaulted on its sovereign debt in foreign currencies at a time when the West imposed sanctions on Russia over its invasion of Ukraine.
“There is no basis to describe this situation as a default,” Kremlin spokesman Dmitry Peskov told reporters, after the deadline for a major payment expired Sunday.
“These allegations of default are completely false,” he added, noting that Russia settled its debts in May.
Western sanctions have largely cut off Russia from the global financial system, making it difficult for Moscow to repay its debts.
The last time Russia defaulted on debt of any kind was in 1998, when the country was rocked by the ruble crisis during the chaotic end of Boris Yeltsin’s regime.
At the time, Moscow failed to continue to make its domestic bond payments, but was able to pay off its foreign debt.
Russia appeared headed for an inevitable default, ever since the European Union and the United States imposed sanctions on it in the wake of the invasion of Ukraine.
This restricted Moscow’s access to international banking networks, which regulate payments from Russia to investors around the world.
The Russian government said it wanted all of its payments to be made on time, and so far it has been successful.
Russia had to pay the $100 million interest on May 27.
Russia says the money was sent to Euroclear, a bank that then distributes the payments to investors.
But those payments remained stuck there, according to Bloomberg, and were not received by creditors.
The funds did not arrive within 30 days of the due date, i.e. Sunday evening, so this is considered a default.
Euroclear did not say whether it had prevented the money from being paid, but said it was complying with all penalties.
A default seemed inevitable with the US Treasury’s decision not to renew the special exemption in the sanctions rules, which allows investors to receive interest payments from Russia, which expired on May 25.
Now the Kremlin appears to have accepted this inevitability as well, decreeing on June 23 that all future debt payments will be made in rubles through a Russian bank, even if contracts stipulate payment in dollars or other international currencies.
Finance Minister Anton Siluanov admitted that foreign investors “will not be able to receive” the payments, RIA Novosti news agency reported.
He said that was for two reasons: “The first is that foreign infrastructure – correspondent banks, settlement systems and depositors – are prohibited from conducting any operations related to Russia.”
The second is to “prevent foreign investors from receiving payments from us”.
Since Russia wants to pay and has a lot of money to do so, the two finance ministers denied that this amounted to a real default, which usually happens when governments refuse to pay, or when their economies are too weak to find money.
“Everyone who knows, understands that this is not a fault at all,” he was quoted by RIA Novosti news agency as saying. “This whole situation looks like a farce,” he added.
Although a default is a symbolic blow, it will have few immediate practical repercussions for Russia.
Troubled countries usually face the impossibility of borrowing more money, but Russia was already barred from borrowing in Western markets due to sanctions.
In any case, Russia is said to earn about $1 billion a day from fossil fuel exports, and Siluanov said in April that the country had no plans to borrow more.