Russia Defaults On Foreign Debt For First Time Since 1918 Amid Tough West-Led Sanctions: Report

Russia missed the Sunday night deadline to meet a 30-day grace period on interest payments originally due May 27.

Russian President Vladimir Putin

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New Delhi: Russia defaulted on its foreign-currency sovereign debt over more than a century for the first time amid the West-led sanctions imposed on the nation that alienated it from the global financial system over the Ukraine conflict. However, Kremlin doesn't consider itself in default saying it has the money to meet the obligations and has been forced into non-payment by the West shutting down its payment routes to international creditors, reported news agency Bloomberg.

“There is money and there is also the readiness to pay," Russian finance minister Anton Siluanov said in May. “This situation, artificially created by an unfriendly country, will not have any effect on Russians’ quality of life.”

Russia’s economic crisis

The nation missed the Sunday night deadline to meet a 30-day grace period of interest payments originally due May 27.

Presently, Russia owes about $40 billion in foreign bonds, and about half of that to foreigners. Much of its foreign currency and gold reserves were held overseas and are now frozen. The nation’s eurobonds have traded at distressed levels since March with the central bank’s foreign reserves frozen, and the biggest banks have been cut from the global financial system.

Last week, it has announced switching to servicing its $40 billion of outstanding sovereign debt in rubles, criticising a “force-majeure" situation which it blamed was artificially manufactured by the West.

Earlier in 1918, Russia fell into default vis-a-vis its foreign creditors when the Bolsheviks under Vladimir Lenin rejected the nation’s staggering Czarist-era debt load. At that time, Moscow defaulted on $40 billion of its domestic debts during the financial crisis and ruble collapse of 1998.  It was able to recover from that default with the help of international aid.

The report noted that a formal declaration of default would be made by the rating firms, but they have withdrawn ratings on Russian entities due to the European sanctions. Now, the bondholders can themselves one if owners of 25 per cent of the outstanding bonds come to an agreement that an “Event of Default” has occurred, reported the agency.

However, analysts believe that the default would not have the kind of impact on global financial markets and institutions that came from an earlier default in 1998, according to AP.