Western countries pouring out super-strong sanctions every day… Russia’s debt repayment ability – question of economic stability
83 trillion won liquidity shortage due to bank run… Stock market closed for 4 days on fears of capital outflow
7 banks to withdraw international payments from the 12th… U.S. imposes export controls on oil refineries
Excluding Russia from MSCI Emerging Markets Index
As the world’s three largest credit rating agencies, Standard & Poor’s (S&P), Moody’s, and Fitch, all at once lowered Russia’s sovereign credit rating, Russia’s sovereign debt crisis is on the rise. Since credit rating agencies have announced the possibility of further downgrading the rating, there is even a forecast that it will not be strange if bankruptcy occurs at any time. It is interpreted as the aftermath of the US and other Western countries pouring out super-strong sanctions every day, such as sanctions not only on the oil refining industry, which is a source of funding for the Russian economy, but also on Belarus, which helped Russia invade Ukraine.
In fact, according to Reuters on the 2nd (local time), the Central Bank of Russia announced that the liquidity shortage in banks was 6.9 trillion rubles (about 8349 trillion won), an increase of about 28% from the previous day. Bank runs (large deposit withdrawals) are cited as the cause. The stock market was not opened for four consecutive days from the 28th of last month to the 3rd of this month as the Russian government closed the doors of the stock market for fear of capital outflow.
On the same day, the International Interbank Telecommunication Association (SWIFT) announced that “seven Russian banks will be excluded from the payment network from the 12th.”
○ “Sanctions weaken our ability to repay debts”
On the 2nd, Fitch gave Russia’s sovereign credit rating six steps lower to ‘B’ (speculative level) and raised it to ‘negative observation’, which can be further downgraded. Last year, Russian bonds, the 11th largest economy in the world according to the International Monetary Fund (IMF), fell to the same grade as Bolivia in Latin America, that is, to practically a piece of tissue paper. Fitch said Western sanctions undermined Russia’s ability and willingness to repay its debts and macroeconomic stability. Bonds below BB+ on a pitch basis are speculative.
Moody’s, who also lowered six steps on the same day, said that the scope and intensity of sanctions from the West exceeded expectations. On the 25th of last month, the day after Russia’s invasion of Ukraine, the S&P downgraded Russia to speculative rating and warned of a possible further downgrade.
In 1998, Russia declared a moratorium on ruble-denominated government bonds and went bankrupt for the first time in history. At that time, the US dollar denominated bonds were repaid, but there is a forecast that it will be difficult to pay off US dollar debt if it goes bankrupt this time. This is because the U.S. and the European Union (EU) have even imposed sanctions on the Russian central bank, effectively cutting off funds. JP Morgan also mentioned the possibility of a default, saying that Russia will have to pay off more than $700 million (about 840 billion won) of debt in March alone.
On the same day, Morgan Stanley Capital International (MSCI) of the US also said that “Russia will be excluded from the emerging market index from the 9th,” and many investors consider the Russian stock market as an impossible place to invest in. The UK Financial Times Stock Exchange (FTSE) Russell Index also decided to exclude the Russian stock market from the 7th.
According to Bloomberg, Russia’s leading bank, Sverbank, which once surpassed 100 billion dollars (about 120 trillion won) in market capitalization but was withdrawn from Western sanctions, was traded for just ‘one penny (about 17 won)’ on the London Stock Exchange on the 2nd. there is. Considering this, there is an observation that even when the Russian stock market reopens, capital will run out like an ebb.
○ US sanctions against Russian oil companies and Belarus
The White House on the 2nd of the United States imposed export controls on oil refineries, which are Russia’s key sources of funding, saying, “It will lower Russia’s status as an energy supplier.” The purpose is to prevent the advancement of refineries by blocking the export of crude oil and gas extraction equipment. It also sanctioned 22 Russian defense-related organizations, including fighters, missiles and unmanned aerial vehicles, to undermine Russia’s weapons development and production capabilities.
The United States is also considering a ban on Russian oil and gas imports, but fears that it will increase oil prices and accelerate inflationary pressures.
The US also banned the export of technology and software to Belarus, a key Russian ally. This is to prevent various military equipment and technology used in the attack on Ukraine from entering Russia via Belarus. The EU has also announced that Belarus banks will be withdrawn from the Swift payment network.
New York = Correspondent Yoo Jae-dong jarrett@donga.com
Reporter Kim Min kimmin@donga.com
Reporter Im Bo-mi bom@donga.com
