Russia defaults on debt due to sanctions

Russia defaulted after bondholders reported the Kremlin missed two payments on Sunday June 26.

This is the predictable result of on Russia due to the . It is Russia’s first foreign debt default since 1918. Although the country has the money to make a $100 million payment that was due on Sunday, Western-imposed sanctions have made impossible to transfer the sum to international creditors.

Russia’s attempts to circumvent sanctions received a further blow in late May, when the US Treasury Department cleared a key.

According to reports, this waiver previously allowed Russia’s central bank to process payments to dollar bondholders through US and international banks on a case-by-case basis.

Russian Finance Minister Anton Siluanov told the Russian state news agency RIA Novosti that the blocking of payments does not constitute a genuine default in payment, which generally results from a reluctance or inability to pay. He called the situation a “farce”.

In general, bond defaults occur when the issuer is unwilling to make payment. In this case, however, Russia was clearly willing to do so; he just couldn’t do it, because of the sanctions.

Russia has not defaulted on its foreign debt since the Russian Revolution. However, it defaulted on domestic debt in 1998.

Russia has so far managed to implement capital controls that have supported the ruble. Russia has also received significant revenue from energy exports due to soaring oil and gas prices.

This default is significant as it could impact Russia’s ratings, funding costs and market access for years to come.

According to a report by Axiosa decree was signed last week by Vladimir Putin for “a temporary measure giving the government 10 days to choose banks to handle payments under a new regime, indicating that Russia will regard its debts as fulfilled in roubles” .

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