The deadline for paying off Russia’s foreign debt is over, which has set the country in motion for default for the first time in nearly a quarter of a century after Western countries blocked Moscow’s attempts to evade financial sanctions. .
About 100 million euros in interest on Russian government bonds arrived Sunday evening with no sign of payment, marking the end of a 30-day grace period during which the country tried to avoid a total non-payment.
Russia has sufficient foreign exchange reserves thanks to revenues from oil and gas exports, but growing sanctions after the invasion of Ukraine have frozen the country out of the global financial system.
Lost payments would be the first default on the country’s debt since the Russian financial crisis in 1998, and would come just as Western nations are trying to increase pressure on Moscow.
G7 leaders meeting in Europe on Sunday sought an agreement to impose a “price cap” on Russian oil as part of efforts to curb Moscow’s ability to finance the war in Ukraine. Ukrainian President Volodymyr Zelenskyy is scheduled to join the summit on Monday via a video link.
The non-payment of payments that were initially due on May 27 comes months after a collapse of Russian government debt this year caused by President Vladimir Putin’s invasion of Ukraine. Bonds maturing in 2036 traded on Monday at about $ 0.20 per dollar in Asia.
“It’s now practically in the price range,” said Paul McNamara, a GAM emerging market bond fund manager, of potential default.
The U.S. Treasury last month closed a sanctions breach that would have allowed U.S. investors to receive payments from the Russian government. The EU also imposed sanctions on Russia’s National Settlement Deposit in early June, preventing Moscow from transferring dollar payments to international securities deposits, which could then settle transactions for Western clients.
Russian officials, including Finance Minister Anton Siluanov, have accused Western governments of trying to force the country into “artificial” default and have tried to evade sanctions by suggesting that Moscow could pay in rubles if dollar payments cannot reach bondholders.
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Putin last week signed a decree creating a mechanism for making payments to be paid on Sunday in rubles, along with another $ 400 million in payments to be paid on Thursday and Friday. However, the terms of these bonds do not contain provisions for making payments in rubles.
The Russian currency has also fallen as a result of the invasion and on Monday fell about 40% against the dollar during the year to date. However, investors did not expect the default to have serious economic consequences for Moscow, as the problem preventing payments was not the lack of funds.
“I think it’s an interesting demonstration of what Americans can do if they decide to, but I don’t think it has big economic implications for Russia,” McNamara said.