Russia has not been able to repay its foreign debt for the first time since 1918. This is believed to be the effect of strict restrictions imposed by Western countries. Foreign creditors waited for a long time but the deadline expired on Sunday, June 27.
The effect of the Ukraine war, which has been going on since February, is now visible on Russia’s economic health. Russia has not been able to repay its foreign debt for the first time since 1918. This is believed to be the effect of strict restrictions imposed by Western countries. According to a Bloomberg report, Russia failed to repay this debt even after making foreign creditors wait for a long time. The grace period for interest payments of approximately $100 million expired on Sunday, June 27. In international trade, the default is the default of a loan, its installment or interest.
Deepening economic crisis
The default of foreign debt further signals a rapid turnaround in Russia’s financial credibility. Russia’s Eurobond has traded at lower levels since the beginning of March. The war has frozen the central bank’s foreign reserves, and the major banks there have been isolated from the global financial system. But in view of the damage done to the economy and the market, the failure to repay the foreign debt is like ‘scabies in leprosy’.
No shortage of money
Russia, on the other hand, has denied considering itself a “loan defaulter”, saying it has enough money to cover any bills and has been forced into non-payment. Russia announced last week that it would make an arrangement to repay its outstanding sovereign debt of $40 billion in roubles. Describing it as ‘an unforeseen situation’, he criticized Western countries and said that all this was done by them. Finance Minister Anton Siluanov dismissed all future apprehensions. He said that despite the conflict in eastern Ukraine, energy exports are still drawing billions of dollars into the state exchequer. He reiterated that the country has the means and the will to pay. A government that has sufficient means to meet its liabilities is being forced to accept the default status by external governments.
What will investors do
There is no doubt that European sanctions have forced rating agencies to downgrade ratings of Russian entities. According to documents on liabilities whose grace period expired on Sunday, 25 per cent of the outstanding bond could be categorized as a default if the owner agreed. It will be interesting to see what investors do next after the deadline has passed. As per the bond documents, all claims will become void only after three years from the date of payment.
