Western sanctions against Russia following its invasion of Ukraine have resulted in that country defaulting on its foreign-currency debt for the first time since the Bolshevik Revolution of 1917 according to Bloomberg.
On Sunday night Russia missed a deadline to meet a 30-day grace period on interest payments worth US$100 million which were originally due on 27th May.
The country’s ability to pay its debt back to international investors through American banks has been curtailed by the U.S. Treasury Department.
News agency Reuters also reports that some Taiwanese holders of Russian bonds denominated in Euros have not received interest payments.
The Russian Finance Ministry said it would pay dollar-denominated debts in rubles amid claims it would present the opportunity to subsequently convert to the original currency. None of the bonds however have terms that will allow for settlement in local currency.
“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 owes about US$40 billion in foreign bonds with about half of that being owed to foreigners. It is estimated that Russia had around US$640 billion in foreign currency and gold reserves before the start of the war in Ukraine. Much of it is currently frozen as it was held in overseas countries.
The likelihood of a default has been high for weeks with ratings agencies classifying the country’s debt as junk.
Russia classifies any claim of default from the West as unlawful as it says it has the money to pay and has been trying to pay. Russia continues to rake in what is thought to be $1billion per day in oil and gas exports.
However, the Russian economy is reeling on many fronts with major international businesses leaving the country including Nike, McDonald’s and Starbucks.
It is believed that creditors may adopt a wait-and-see approach as they are barred from dealing with Russia’s finance ministry due to the sanctions which would preclude a settlement from being made.