Country tries to pay off $40 billion in foreign currency debt despite Western sanctions
Russia is on the brink of default on its sovereign bonds for the first time since 1918 in the face of economic sanctions announced by the West in retaliation for the war in Ukraine. On Sunday (June 26, 2022) the country missed the deadline to fulfill a 30-day grace period in interest of US$ 100 million in 2 Eurobonds due on May 27, according to the Bloomberg.
White House officials attributed the default economic sanctions applied to the country. “This morning’s news about the discovery of Russia’s default, for the first time in more than a century, sets out just how strong the actions the US, along with allies and partners, have taken, as well as the dramatic impact on Russia’s economy. Russia”a government official told journalists this Monday morning (June 27), according to Reuters.
The Russian Ministry of Finance, however, claims that it has met its obligations and made payments to its NSD (National Settlement Deposit). Kremlin spokesman Dmitry Peskov said the country made payments on the bonds due in May but were blocked by Euroclear because of Western sanctions.
According to Reuters, Thai bondholders have not yet received interest payments.
Since the invasion of Ukraine, which began on February 24, the country has struggled to maintain payments on up to $40 billion in bonds. The Kremlin says there is no reason not to pay the debt, but is unable to send the money because of sanctions. The government accuses the West of trying to lead the country into default.
Russia has the money to pay off the debt, but cannot access it. Since 2014, when it annexed Crimea and became the target of sanctions, the Kremlin has amassed more than $600 billion in foreign reserves. Now, according to the Ministry of Finance, about $300 billion is blocked. The debts belong to the Russian government and large Russian companies such as state-owned natural gas giant Gazprom and Sberbank, the biggest bank in Eastern Europe.
In all, Russia has US$ 205 billion in foreign debt, of which about US$ 120 billion is in dollars and most of the rest in euros, according to a survey carried out by the Bloomberg. Approximately $25 billion is from Gazprom.
In 1998, Russia defaulted on its domestic debt. If the default If it comes to fruition, it will be the first in foreign currency since the 1917 Revolution, when the Bolsheviks refused to recognize the tsar’s debts. Failure to repay the debt could cause the few foreign investors left in the country to flee and further isolate the Russian economy.
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