Topline
Russia’s Finance Minister Anton Siluanov said Wednesday the country had attempted to make interest payments on two dollar-denominated government bonds, but said it was up to the United States to make sure the payments go through, amid concerns that Russia could default on its debt for the first time since the late 1990s.
Russia’s Finance Minister Anton Siluanov said Wednesday it was possible to pay interest payments on … [+]
Key Facts
Russia was due to pay $117 million on the bond issues Wednesday, but Siluanov said the U.S. needed to ensure that the money could be withdrawn from Russian foreign currency accounts that have been frozen by international sanctions imposed due to Russia’s invasion of Ukraine.
“The possibility or impossibility of fulfilling our obligations in foreign currency does not depend on us, we have the money, we paid the payment, now the ball is in America’s court,” Siluanov said in an interview with state-controlled Russia Today.
He said it was possible to pay in rubles, however, the two bonds do not allow interest payments to be made in Russian currency and credit ratings agency Fitch has said doing so would constitute a sovereign default.
Western sanctions on Russia do not currently block it from making interest payments on dollar-denominated bonds, a Treasury spokesperson told Bloomberg, adding that Americans can “receive interest, dividend, or maturity payments on debt or equity of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation” up until late May.
Following Russia’s attack on Ukraine, the ruble has tumbled, many multinational companies have suspended businesses in Russia, and inflation has spiked, causing Russia’s credit rating to be downgraded to “junk” by ratings agencies.
The U.S. Treasury Department did not immediately respond to a Forbes request for comment.
What To Watch For
If Russia fails to make the interest payments, it would get a 30-day grace period before it defaults. A default can come as a result of a court decision or ratings agencies downgrading Russia’s credit rating to default. The former is an unlikely route for investors, Financial Times reported, as they could risk defaults in other bonds where payments might be kept up. Russia’s failure to pay what it owes could also potentially lead to defaults on $150 billion of foreign currency debt owed by the Russian government and Russian companies, Bloomberg reported.
Crucial Quote
“I worry about what I do not see,” Carmen Reinhart, the World Bank’s chief economist, told Reuters last week. “Financial institutions are well-capitalized, but balance sheets are often opaque… There is the issue of Russian private sector defaults. One cannot be complacent.”
Key Background
Some experts predict that a Russian default would have a limited impact on global financial markets, unlike in 1998 when a Russia default in the wake of the Asian financial crisis rattled global markets. Many foreign investors and companies have reduced their exposure to Russia since Western sanctions were imposed on the country in 2014 for its illegal annexation of Crimea. Russia experienced a foreign currency default after the 1917 Revolution, when Bolsheviks didn’t recognize tsarist debt, and a domestic debt default in 1998, when Russia’s economy struggled after the fall of the Soviet Union. The latter caused the collapse of the U.S. hedge fund Long-Term Capital Management.
Further Reading
Russia Blames Sanctions for Pushing It Toward First Default Since 1998 (Wall Street Journal)
EXPLAINER: What would a Russian bond default mean? (Associated Press)
What happens if Russia can’t pay its debts after western sanctions? (Guardian)
What to expect as Russia warns of historic debt default (Financial Times)
Russia, Belarus squarely in ‘default territory’ on billions in debt -World Bank (Reuters)
Source: https://www.forbes.com/sites/lisakim/2022/03/16/russia-claims-it-has-made-bond-interest-paymentsbut-says-up-to-us-to-make-sure-they-go-through-amid-fear-of-default/