Sanctions show their strength: Russia has defaulted

The rating agency Moody's Investors Service confirmed in its statement that the Russian superpower is in default. Moscow has so far dismissed similar controversies, saying it has money and has sent it to creditors, but has not received it because of sanctions imposed on the Russian economy by Western states.

On 27 May, the deadline for Russia to pay interest on two foreign bond issues of about $100 million expired, but the creditors have not received the money.  The deadline for Russia to resolve the situation within 30 days passed last Sunday. The creditors still have not been paid, and so it is clear that there has been a failure on the part of the Russian Federation, which may not be the only one. The coming weeks will show how the situation develops and whether further problems will surface in relation to the servicing of Russian debt.

 

An uncertain situation

Given that Russia has maintained since the beginning of the sanctions that it has the money to pay its obligations, there have been generally conflicting views as to whether or not the country has fallen into default.  Usually, the indicator of this state, which is referred to as default, is either that the country does not have the money to pay its obligations, or simply refuses to pay.  Since Russia has not yet officially fallen into either of these categories, it was awaited to see how the situation would crystallise.

 

Cut off from the world

Due to the attack on Ukraine and the related sanctions, Russia is cut off from access to the international payment system and therefore cannot complete foreign payments.  The money, which Moscow claims was sent in euros and dollars, did not pass through the Euroclear international settlement centre in Belgium, which ensures the smooth running of foreign payments. According to Bloomberg, the money remained there, and creditors did not get to them. However, Euroclear did not say whether it had blocked the transaction, only informing that it was complying with the sanctions imposed.

 

The Kremlin denies the information

The foreign debt default is the first for Russia since 1918. However, the Kremlin continues to deny the information vigorously. "The claims of default are incorrect, as the necessary payments in the currency were already made in May," Kremlin spokesman Dmitry Peskov informed as recently as Monday. He also said Russian reserves had been frozen illegally, and the money had not been delivered to the recipients. According to him, there are no grounds to "incorrectly" label this state of affairs as default.

 

Olívia Lacenová, Chief Analyst of Wonderinterest trading Ltd.

 

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