The nearly 100 million euros in interest should have been paid to foreign investors by Sunday. Several creditors report that they have not received anything. This now seems to be what has been happening for weeks: that Russia will be known as a defaulter.
Not that Russia is broke: it has enough money to pay its creditors. The problem is that it is not possible to pay out this money because of the sanctions imposed by Western countries because of the invasion of Ukraine. Russia is largely excluded from global payments and cannot access hundreds of millions of dollars and euros because these are frozen in foreign accounts.
Until the end of May, there was a temporary exception to the sanctions in the United States, which allowed Russia to repay creditors. That exemption was not extended on 25 May. Russia’s Finance Minister Anton Siluanov said last week that the West has created “artificial obstacles” to “put the defaulter label on Russia.”
Kremlin
The Kremlin denies that it has defaulted. The money has been transferred, said spokesman Dmitri Peskov. That it subsequently does not arrive is ‘not our problem’.
Hardly anyone wants to lend money to a defaulter; There’s a good chance you won’t see it again, after all. That is why it is a problem for a country if it fails to pay off a debt on time: borrowing money becomes difficult, and investors who dare demand high interest rates.
In this case, the consequences of a notice of default will not be immediately felt for ordinary Russians. Borrowing money on the international markets has in any case been made virtually impossible for the state due to the sanctions. This situation does not put the country in acute problems because it earns well from fossil fuels due to the sky-high energy prices.
A lot more interest
In the longer term, this could change if sanctions are relaxed at some point and Russia needs loans again. Then it might have to pay considerably more interest because of its image as a defaulter.
Normally, investors enter into negotiations with the government that has defaulted, for example to make agreements about debt relief so that they can at least get some of their money back. But due to the unique situation – negotiating with the Russian government is not possible due to the sanctions and this default is not the result of a lack of money – this is not possible.
In this case, many investors will wait in the hope that the sanctions will be lifted in the foreseeable future so that they can still get paid, analysts expect.
Before the war, Russia was known as a reliable reliever. Its failure to pay off international debt on time is therefore highly exceptional: it last happened more than a hundred years ago, when the Bolsheviks took power. In 1998, Russia failed to pay off domestic debts.
Sunday’s missed payment deadline of 100 million euros is not technically the first amount that Russia did not pay on time in this war. In May, it already failed to transfer the relatively small amount of 1.8 million euros in interest on time.