Russia may default on foreign debt for the first time in more than 100 years
The U.S. Treasury Department announced on Wednesday 24 that it has finally decided to end a waiver policy that allowed Moscow to make payments to U.S. investors holding Russian bonds as of Wednesday at 00:01 Washington time. The decision could have put Russia in a state of debt default.
The measure will take effect two days before Moscow’s next payment deadline, which covers interest on two bonds amounting to slightly more than $100 million.
However, the U.S. Wall Street Journal, citing the official Russian news agency TASS, reported that Russian authorities may have already paid the interest.
In addition to the interest payments on the bonds that need to be made on May 27, the Russian government has 12 more payments to make before the end of the year. Therefore, a default seems inevitable.
This waiver policy has allowed Moscow to escape sanctions since the West began imposing them on Russia.
U.S. Treasury Secretary Janet Yellen explained last week that Washington agreed to a temporary waiver policy to “achieve an orderly transition that will allow investors to sell their bond holdings.
She said at the time that the waiver would “likely” end this Wednesday.
Since early April, Russia has been unable to pay its debts with the dollars it holds in U.S. banks.
In late April, Russian Central Bank Governor Elvira Nabiullina admitted that Moscow was facing “payment difficulties,” but she declined to talk about a default.
According to the Russian Finance Ministry, Russia’s foreign debt is estimated at 4.5 trillion to 4.7 trillion rubles (1 ruble is about $0.018), or about 20 percent of total public debt.
Russia defaulted on its domestic debt denominated in rubles during the 1998 financial crisis, but it has not defaulted on its foreign debt since 1918, when Bolshevik leader Vladimir Lenin refused to recognize the debt left by the czarist regime that was overthrown in the 1917 revolution.
In the event of a default, the Russian government would either lose access to large sums of money or would have to pay extremely high interest rates, despite the fact that it has been unable to raise funds due to the sanctions imposed by the West.
Holders of outstanding bonds may have lost all or part of their money.
A legal battle could also break out as Russian Finance Minister Anton Siluanov said back in April that Russia would initiate proceedings if the West declared Russia to be in default.
He accused the West at the time of “artificially” creating the conditions for a default.
Like all countries, Russia borrows money in the form of bonds, which are usually denominated in U.S. dollars and must pay interest and repay principal regularly.
A country is considered to be in default when it fails to meet its commitments to creditors.