For the first time since 1918: Russia defaults on sovereign debt in innovative currency as the culmination of Western sanctions

27 June 2022, 09:46 | Economy
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Russia is defaulting on its sovereign foreign-currency debt for the first time in a century, the culmination of ever-tougher Western sanctions that have cut off payments to foreign creditors..

For months, the country has been finding ways around the penalties imposed after the Kremlin's invasion of Ukraine.. But at the end of the day on Sunday, June 26, the grace period for the payment of $100 million in interest that was due by May 27 ended.. Non-payment of this kind during the next grace month is considered a default event..

The last time Russia defaulted on its foreign creditors was over a century ago, when the Bolsheviks under Vladimir Lenin abandoned the country's staggering czarist-era debt load in 1918..

According to some indicators, then the debt approached a trillion dollars in today's money, in particular, according to Hassan Malik, a spokesman for Loomis Sayles, who is also the author of Bankers and Bolsheviks: International Finance and the Russian Revolution..

Returning to the current situation, for comparison, at the beginning of April, foreigners held Russian Eurobonds in the amount equivalent to almost $20 billion.

Transformation of the Russian Federation in the economic, financial and political pariah.

The current situation with Moscow's international isolation testifies to the rapid transformation of the country into an economic, financial and political pariah. National Eurobonds have been trading at troubled levels since the beginning of March, central bank foreign exchange reserves remain frozen, and the largest banks are cut off from the global financial system..

But given the damage done to the economy and markets, the default for now is also mostly symbolic and matters little to Russians, who are already dealing with ambiguous inflation and the worst economic contraction in years..

Russia expectedly withdrew its default data, saying it had the funds to cover any bills and was allegedly forced not to pay. In particular, the Kremlin announced last week that it was switching to servicing its $40 billion of ruble-denominated sovereign debt, criticizing a force majeure situation it says the West has artificially created..

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“It is a very, very rare thing when a government that would otherwise have the funds is forced to default due to the actions of outside governments,” said Hasan Malik, senior sovereign analyst at Loomis Sayles \u0026 Company LP.. "

The official statement usually came from the rating companies, but European sanctions have led to the fact that Russian companies have been removed from any ratings.. According to the documents for bonds whose grace period ended on Sunday, the owners of these bonds can call them themselves if those who own at least 25% of these securities agree that a “Default Event” has occurred..

Recall that gold may become the object of new EU sanctions against Russia.

At the same time, according to analysts from the Wall Street Journal, Western sanctions have not yet caused Russia sufficient economic damage..

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