Because of the Western blockade of its foreign exchange reserves as a result of the war against Ukraine, Moscow intends to continue to do so in the future. “If this blockade continues and payments to service the debt are blocked, they could be made in rubles,” Kremlin spokesman Dmitry Peskov said.
“Formal default on foreign debt” threatens
“Russia has all the resources it needs to service its debt,” Peskov said. The Russian Ministry of Finance had previously decided to make the payments of USD 649.2 million (EUR 591.9 million) that were actually due to the creditors of the government bonds that run until 2022 and 2042 in the national currency rubles. According to experts, Russia now has 30 days to transfer this money in dollars. Otherwise, the process would become “a formal default by Russia on foreign debts,” as the Russia expert Gerhard Mangott from the University of Innsbruck tweeted. “Theoretically, a failure situation could be created, but that would be a purely artificial situation,” said Kremlin spokesman Peskov. “There are no reasons for a real default.”
The US had previously increased pressure on Russia over the invasion of Ukraine. The Treasury Department in Washington prevented the Russian government from making the payments due from the foreign exchange reserves held in US banks, which was previously possible. This is intended to force the Kremlin to make a choice: Use the dollars it has access to domestically to either pay its creditors or use it for other purposes, such as financing the war and risking a sovereign default.
“Russia must decide whether to use up the remaining valuable dollar reserves or generate new revenue — or default,” a US Treasury Department spokesman said. If the obligations are not met, Russia faces the first default since the Russian Revolution in 1917, when the Bolsheviks refused to recognize debts from the tsarist era. The major US bank JPMorgan Chase has so far processed the Russian payments as a correspondent bank. It has now been stopped by the Treasury Department, an insider told Reuters news agency.
In total, Russia has 15 outstanding international bonds with a face value of around $40 billion. While Russia currently does not have access to international bond markets to borrow fresh money due to the sanctions, a default would probably prevent the country from accessing these markets for many years – namely until the creditors are fully satisfied and all resulting from the default litigation has been settled.
Source: Nachrichten
