It is a matter of time before Russia defaults on its foreign debt after Joe Biden cuts the Kremlin from paying its bonds.
Moscow is on the cusp of its first external debt default in a century after the United States allowed an exemption to expire that would allow Russia to meet its obligations to international creditors.
The cut, which means U.S. banks and individuals are banned from receiving Russian bond payments, comes before Moscow has to make a $ 100 million tranche of payments on Friday.
The Office for the Control of Foreign Assets said on Wednesday that it would “not renew” the provisions, which were introduced as part of the Western financial bailout of Vladimir Putin in late February.
The clock is now moving in an international predetermination, which would be the first since the aftermath of the Bolshevik revolution.
The Kremlin reacted on Thursday and pledged to pay off its dollar debt in rubles, an option that had previously been rejected by international lenders.
Anton Siluanov, Russia’s finance minister, said the situation “has nothing in common” with 1998, when the country defaulted on about $ 40 billion in domestic debt due to a lack of “sufficient funds.” .
He said Russia was facing an “artificial situation created by a hostile nation”, adding: “We have the money and the will to pay.”
Payment for the three-coupon coupon is due this Friday, but most homeowners are said to be outside the United States, meaning an agreement is still possible unless European banks stop transactions for fear of US reprisals.
Another stretch, on bonds that are mostly held in the United States, will expire next month. If this payment is made impossible, Moscow will enter a 30-day grace period, after which it will probably be considered default.
Timothy Ash, an emerging market strategist at BlueBay Asset Management, said it was now “just a matter of time” before Russia defaulted. This result would further boost confidence in Russia’s status as a borrower, but it will also leave international investors who bought bonds out of their own pockets for billions of dollars.
“Russia will lose almost all market access, even to the Chinese, because of this defect,” Ash said. “It will mean no funding for Russia [and Russian companies] except for exorbitant interest rates. It doesn’t mean capital, investment, or growth. “