Russia Defaults On Its Foreign Debt As Grace Period For Payment Expires, Reports Say
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Russia has defaulted on its foreign debt for the first time since 1918, according to several reports, as the country claims its ability to make the payments have been impaired by economic sanctions against it by the West following its invasion of Ukraine.

Key Facts

The grace period for $100 million in interest payments for eurobonds—originally due on May 27—expired on Sunday.

Reuters, citing unnamed sources, reported some of the bond’s Taiwanese holders did not receive the interest payments even as the deadline passed, indicating a default.

The Russian government has blamed economic sanctions by the West for creating “artificial barriers” that prevent it from making the payments despite it having the money to do so.

Bloomberg notes that the impact of the default will largely be symbolic and Russia is unlikely to face the need to raise additional foreign debt anytime in the near future due to the international sanctions and massive incoming revenue from oil and gas exports.

Declarations of foreign debt defaults are usually made by global rating agencies like Moody’s, Fitch and S&P, however, sanctions have forced all three to suspend the issuance of ratings for Russian entities.

Chief Critic

Last week, Russia’s Finance Minister Anton Siluanov dismissed the default reports, saying: “Current statements about the default are out of touch [with the reality] at all. This is the default of Western countries before themselves. We have money. I reiterate we will make payments…in order to keep the image of our country as a reliable state that can be dealt with.”

Key Background

Last month, the Treasury Department barred U.S. entities from receiving Russian bond payments after it allowed a special sanction exemption to expire. Washington’s economic sanctions against Russia—following its invasion of Ukraine—initially included an exemption that allowed U.S. investors and banks to continue to receive interest payments on Russian bonds. Monday’s default is Russia’s first since the Bolshevik Revolution in 1918 when the country’s new Communist leader Vladimir Lenin dismissed the massive foreign debt accrued by the ousted Czar’s regime. In 1998, the Russian government under President Boris Yeltsin defaulted on $40 billion on domestic debt as the country reeled under a financial crisis.

Further Reading

Russia Defaults on Foreign Debt for First Time Since 1918 (Bloomberg)

Sanctions Push Russia to First Foreign Default Since Bolshevik Revolution (Wall Street Journal)

Taiwan holders of Russian bonds say haven’t received payments (Reuters)

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