Russia has failed to pay its foreign debts for the first time in a century, a humiliating blow to Vladimir Putin, which further freezes his country from the Western financial system.
After narrowly evading default several times after the invasion of Ukraine began in late February, Moscow failed to pay $ 100 million in bond coupons due last month, for which the 30-day grace period ended on Sunday.
Payment was virtually impossible after the White House moved to block creditors’ channels in the West, meaning Russia could not settle its debts despite its means and willingness to do so.
The default – the first time Russia has failed to make payments to international bondholders since the Bolshevik revolution of 1918 – is so far largely symbolic: Russia is already a pariah in the Western financial system and unlikely to use international money markets in the near future. future.
But that will further tie Putin’s hands, as the country has suffered its biggest economic shock in years and could wipe out Russian companies from future funding opportunities if the contagion spreads to corporate bonds.
The country had previously failed to repay its domestic debt in 1998 as it underwent a post-Soviet economic transformation.
Russia claims the default is a fake, artificially created by the United States. Last week, she said she would service her debt in rubles, a move creditors have already ruled out. Finance Minister Anton Siluanov called the situation a “farce.”
He said: “Everyone can declare what they want.
“But anyone who understands what’s going on knows that this is by no means the default.”
Usually a default will be announced by one of the Wall Street rating companies, probably S&P, Fitch or Moody’s. But European Union sanctions have forced companies to withdraw their coverage for Russia.
However, bonds on which payment is missed allow their holders to declare default if 25% agree that non-payment has occurred. The documents attached to the debt instruments give three years for a claim to arise – meaning some investors may have to wait to see if Russia will recover in the global financial system during that time.
If they take action, it could be difficult through the legal system, because Moscow has said it will reject the jurisdiction of any foreign court.
Foreigners held about $ 20 billion in Russian Eurobonds in early April. Several payment deadlines have already expired, including on Thursday and Friday last week, so it is possible that Russia will soon be considered outstanding in many obligations.
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