6.27.22
Russia has defaulted on its foreign debt for the first time since the Bolshevik revolution more than a century ago. Following reports that Moscow had failed to pay about $100 million in interest on two bonds during a 30-day grace period that expired Sunday, the White House said the default showed the power of Western sanctions imposed on Russia since it invaded Ukraine. "This morning's news around the finding of Russia's default, for the first time in more than a century, situates just how strong the reactions are that the US, along with allies and partners, have taken, as well as how dramatic the impact has been on Russia's economy," a senior administration official said on the sidelines of a G7 summit in Germany. The historic default had been widely anticipated after half Russia's foreign reserves were frozen and the US Treasury ended a carve-out from sanctions that had allowed US bondholders to be repaid by Russia. The European Union also made it harder for Moscow to meet its debt obligations earlier this month by sanctioning Russia's National Settlement Depository, the country's agent for its foreign currency bonds.
The country managed to pay back creditors with dollars in April after a long saga that put it on the brink of default. The country's finance ministry said in April that it made a $565 million eurobond that was due this year, as well as an $84 million eurobond that was set to mature in 2024. Both payments were made in US dollars, the finance ministry claimed, as required by the bond's contract stipulations. But that wasn't possible this time around, given the recent moves by US and EU authorities. Russian Finance Minister Siluanov was quoted by state-owned news agency Ria Novosti as saying last week that the sanctions meant Moscow had no "other method left to get funds to investors, except to make payments in Russian rubles." It's not clear what effect — if any — the default will have on Russia's economy in the near term, as the country is already unable to borrow abroad and its existing bonds have collapsed in value to pennies on the dollar. But in the long term, Russians will almost certainly suffer.
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