Following reports that Moscow failed to pay about $ 100 million in interest on two bonds during Sunday’s 30-day grace period, the White House said the default showed the strength of Western sanctions imposed on Russia after it invaded in Ukraine.
“This morning, news of Russia’s failure to meet its obligations, for the first time in more than a century, shows how strong the reactions the United States, along with allies and partners, has taken, and how dramatic the impact has been. for the Russian economy, “said a senior administration official on the sidelines of the G7 summit in Germany.
Russia has denied default, saying payments were made in dollars and euros on May 27 and the money remained with Euroclear, a settlement based in Belgium.
The historic default was widely expected after half of Russia’s foreign exchange reserves were frozen and the US Treasury Department ended an exemption from sanctions that allowed US bondholders to be repaid by Russia.
The European Union also made it difficult for Moscow to meet its debt obligations earlier this month by sanctioning Russia’s national settlement depository, the country’s agent for its foreign currency bonds.
However, this took longer than many expected: sanctions have largely failed to cripple Russia’s economy as rising energy prices have filled the country’s coffers.
Meanwhile, the Russian currency has risen to a seven-year high against the US dollar.
The country managed to repay creditors with dollars in April after a long saga that put it on the verge of bankruptcy. The country’s finance ministry said in April that it had made a $ 565 million Eurobond to be due this year, as well as a $ 84 million Eurobond to fall in 2024. Both payments were made in USD, according to the Ministry of Finance, according to the requirements of the contractual terms of the bond.
But this was not possible this time, given the recent moves by US and EU authorities.
Russian Finance Minister Siluanov was quoted as saying by the state-run RIA Novosti agency last week that the sanctions meant that Moscow had “no other way to obtain funds for investors than to make payments in Russian rubles.”
Russia’s finance ministry said in a statement to the Telegram on May 27 that the Russian national settlement depository had made the necessary payments of $ 71 million and 26.5 million euros.
“The allegations of non-compliance are untrue because the necessary payment in foreign currency was made in May,” Kremlin spokesman Dmitry Peskov told reporters on Monday.
The fact that the money transferred to Euroclear was not delivered to investors is “not our problem,” he said.
“So there’s no reason to call it a default,” he said.
Euroclear cannot settle any securities with counterparty that are subject to sanctions.
Since 2014, the last time the West sanctioned Russia for annexing Crimea, the Kremlin has amassed about $ 640 billion in foreign reserves. About half of these funds are now frozen under Western sanctions imposed after the invasion of Ukraine.
It is unclear what effect – if any – the default will have on Russia’s economy in the short term, as the country is no longer able to borrow from abroad and its existing bonds have collapsed to pennies.
But in the long run, the Russians will almost certainly suffer. The country’s attack on Ukraine has left it with few friends in the international community, and failure to do so is likely to cut off access to foreign funding for years.
– Claire Sebastian and Phil Mattingley of CNN contributed to this report.
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