Russia defaults payment of foreign debts for first time in 100 years

Russia for the first time in 100 years defaults on paying foreign debts that Moscow owed to international creditors. Interest payment for two foreign currency bonds was supposed to be finalized before Sunday night.

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Bondholders said that after May 27th 2022 (actual deadline) Moscow got a 30-day grace period to pay the bonds which also got defaulted.

This is the first time since 1918 that Russia defaults on paying back foreign creditors. Back in 2918 country was not able to make payments due to the Bolshevik revolution happening at that time.

What led to this?

Since the beginning of Russia’s special military operation in Ukraine, several western and European countries have frozen Russian assets in their countries. This freezing of assets is legally introduced in form of sanctions. Even foreign exchange of the Russian government parked in banks in the United States of America was frozen.

This led to a situation where Russia was not able to make international payments using the foreign exchange it had. Loan payments got stuck, as creditors were only ready to take payments in Dollars.

While Russia offered to make payments in Roubles, all creditors and international, financial institutions declined the offer and pressed for Dollar payment which Russia could not execute.

According to Bloomberg and various news agencies, countries in European Union alone have frozen Russian assets worth more than 30 billion dollars. Needless to say, the United States alone has frozen Russian assets worth billions of dollars. The majority of Foreign currency and gold worth $640 billion owned by Russia is currently frozen overseas.

Last month, the United States had decided to not extend the waiver,  which allowed Russian monetary intuitions to make use of foreign exchange for interest payment on sovereign binds. Once the licence period got expired, all Russian banks and institutes could not get access to any foreign exchange for making payments.

Fox News reported a month ago that Russia had almost 500 million dollars worth of payments to make in May and June.

Russia owes nearly $20 billion as sovereign debt to foreigners and another $20 billion to domestic creditors.

Russian Finance Minister, Anton Siluanov said last month that this debt default situation got created artificially by some countries. He said that there is money and Russia was ready to pay. Minister went on to add that none of this will have any effect on the quality of life of Russian citizens.

Russia has been under sanctions since the beginning of its military operation in Ukraine. Russia is currently the most sanctioned country in the world with more than 5500 sanctions to its name.

 

Thomas Babychan

Thomas Babychan is an experienced business and economic journalist with a focus on international trade, stock market, banking, and multilateral organizations. He also has expertise in international relations and diplomacy.

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