MOSCOW (dpa-AFX) – Russia is apparently facing the first default on foreign debt in more than 100 years. A 30-day period expired on Monday night, within which interest on two government bonds in foreign currency had to be paid. It’s about a total of around 100 million US dollars. If investors didn’t get the money, which is likely given the West’s severe financial sanctions, it would be the first default on foreign debt since 1918. The more recent default, from 1998, was on domestic-held debt.
The background of the current case is complicated and seeks historical comparison. Russia emphasizes that it is economically able and willing to service its debts. However, this is opposed to severe sanctions, primarily by Western countries, which were imposed in response to Russia’s war against Ukraine. As a result, Moscow can neither access most of its financial reserves in western countries nor transfer domestic reserves to western creditors.
Large rating agencies, which would normally determine a payment default, are currently not allowed to do so due to sanctions. Communities of creditors who might try to legally enforce their claims against Russia have not yet come out in public. Russia’s Finance Minister Anton Siluanov described the impending default as a “farce” last week. Anyone who understands the events knows that it is not a matter of default.
Experts were initially rather cautious about the matter. The looming payment default is likely to be of a more symbolic nature, explained Dekabank analysts. The background to this is that the direct consequences of a Russian default can initially be regarded as rather limited. For one thing, Russia is not heavily indebted. The ratio of total debt to economic output is currently around twenty percent, which is low in international comparison. On the other hand, only a small part of the national debt is in the hands of foreign creditors.
The medium-term consequences of the failure are difficult to foresee. First, at least 25 percent of the affected creditors would have to determine a formal payment default. It is currently questionable whether this would result in a so-called cross-default. In this case, not only the bonds affected by the current default, but all of Russia’s external debt would be considered non-performing. Russia wanted to rule out this case in the end. However, it is at least doubtful whether such unilateral steps would stand up in international courts. As a result, a lengthy legal dispute between Russia and its creditors could be imminent./bgf/jsl/stk