Russia has defaulted on its international debt payment for the first time since 1918, as Western sanctions freeze the nation out of the global financial system.
Here’s what you need to know.
Russia has missed a major payment deadline which was due on Sunday. The payment of $100m, owed to international creditors, could not be made due to the Western sanctions.
Thanks to its oil and gas revenue, Russia had the money to make the payment. However, it missed the 30-day grace period deadline for the interest payments, originally due on 27 May.
Moscow, keen to avoid defaulting, claims to have sent the $100m payment to Belgian bank Euroclear, which would then usually distribute the payment to investors.
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Yet the money has not moved. Two Taiwanese owners of Russian Eurobonds told Reuters that they had not received their interest payments.
So far, Russia has been able to make seven other interest payments since its invasion of Ukraine on 24 February.
What is defaulting?
Defaulting is the failure to meet required payments of a debt – whether principal payments or interest.
In the case of a national default – like Russia’s – this usually amounts to a government refusing to pay its national debt, often because it cannot afford to do so.
Last Month, Sri Lanka defaulted on its national debt for the first time in the nation’s history, as it struggles with its worst financial crisis for 70 years.
Why has Russia defaulted?
Following the invasion of Ukraine, Russia has faced sanctions imposed on it by the West – with hundreds of billion dollars of currency reserves held abroad having been frozen, and with the nation having been cut off from much of the world’s financial system, Russia’s ability to continue its debt payments has been under threat.
Prior to the invasion, Russia had been rated as an investment grade nation – having a strong track record of making interest payments.
However, with Euroclear saying that it has adhered to all sanctions against Russia, the nation has not been able to complete its payments.
Has Russia defaulted before?
In 1998, in the midst of a financial crisis, the government was forced to default on domestic debt. The last time Russia defaulted on international debt was in 1918, following the Bolshevik revolution.
Having deposed and disposed of Tsar Nicholas II, the Bolsheviks refused to acknowledge or pay external debts that had been racked up under the Tsarist Regime.
For over a century, though, Russia has paid its debts without defaulting. With the ongoing war in Ukraine preventing it from doing so now, its future as an investment prospect is slipping away.
What does all this mean?
Russia has claimed that its failure to make these debt payments is an artificial default, having been manufactured by Western sanctions. Russia’s finance minister Anton Siluanov said: “Everyone in the know understands that this is not a default at all. This whole situation looks like a farce.”
“The fact that Euroclear withheld this money and did not bring it to the recipients is not our problem,” said Dmitry Peskov, the spokesperson for the Kremlin.
Generally, nations find it difficult to borrow money following a default. But given the sanctions, Russia is effectively unable to borrow anyway, and with its massive revenue from oil and gas exports, it doesn’t need to.
The default could impact Russia in the future, however. Argentina, for instance, has suffered defaults before – one of which, in the early 2000s, damaged Argentina’s ability to borrow for years.
Russia could emerge from the war of its own making as an outcast nation, unable to find the investment it once enjoyed.