Russia was yesterday due to make an interest payment on its foreign debt, the first since the West hit Moscow with sanctions over its invasion of Ukraine, which have raised concerns that Russia could default.
Moscow was due to pay US$117 million on two US dollar-denominated bonds.
Sanctions over Russia’s war in Ukraine have targeted US$300 billion of its foreign currency reserves held abroad.
Without access to these funds, concern has mounted that Russia could find itself forced to default.
Indicating an intent to pay, the Russian Ministry of Finance earlier this week announced that it had sent a payment order for “a total of US$117.2 million.”
Earlier, Russian Minister of Finance Anton Siluanov denied that Russia would not be able to make the payments.
He said Russia was prepared to service the debt in rubles, according to the exchange rate of Russia’s central bank on the day of the payment.
He also accused the West of pushing Russia toward an “artificial default.”
FIRST SINCE 1918
If Russia fails to make the bond payment, an automatic 30-day grace period kicks in and after its expiry, it would be considered in default on its foreign currency-held debt — a first since 1918, when Russian revolutionary Vladimir Lenin refused to recognize the debts of the deposed tsar.
Russia defaulted on domestic, ruble-denominated debt in the late 1990s.
Analysts at JPMorgan have said that US sanctions should not directly restrict Russia’s ability to service its debt.
According to the US Department of the Treasury, interest payments to US entities “are permissible through May 25,” on bonds issued by Russia’s central bank, finance ministry or national wealth fund before March 1.
After, they would need authorization to continue receiving these payments.
Western sanctions have crippled the Russian banking sector and financial system, and precipitated a collapse of the local currency.
A default automatically cuts a state from the financial markets and compromises a potential return for several years.
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