For the first time since 1918, Russia is about to default on its debt, further isolating the country from the international financial system in the wake of sanctions brought on by its involvement in the war in Ukraine.
The country has already missed its deadline on Sunday night where it had to meet the 30-day grace period on interest payments of USD 100 million on two Eurobonds which were originally due on May 27.
Some Taiwanese holders of Russian Eurobonds claimed they hadn’t received their regular interest payments.
Late in May, the Office of Foreign Assets Control (OFAC) of the US Treasury Department essentially prevented Russia from making payments, putting an end to Moscow’s attempts to avert the default.
Although a legal default would primarily be symbolic given that Russia cannot currently borrow abroad and does not need to because of the country’s ample income from oil and gas exports, the stigma would likely drive up its borrowing prices in the future.
Russia, on the other hand, has offered to settle the obligations in roubles, and claims sanctions have frozen its foreign currency reserves kept overseas, calling any default artificial given that it has the funds to pay its debts in full.
In foreign bonds, Russia owes around USD 40 billion. Moscow had roughly USD 640 billion in gold and foreign currency reserves when the conflict started, most of which were kept abroad and frozen.
Once a country defaults, it may be prevented from borrowing from the bond market until the default is resolved and investors once again have faith in the government’s willingness and ability to make payments.
Russia’s access to Western credit markets has already been severed, thus any return to borrowing is already in the distant future.