Russia failed to pay interest on foreign currency denominated government bonds for the first time in a century. This default (the default) is in response to economic sanctions by Western countries, regardless of Russia’s ability to pay. The impact on Russia and the world economy is expected to be limited.
Foreign media, including Bloomberg News, reported on the 26th (local time) that Russia had not been able to repay the unpaid interest of 100 million dollars (about 128.1 billion won) due to dollar and euro bond holders until that day. The payment date of this non-payment was originally on the 27th of last month, and a grace period of 30 days was given, but Russia could not avoid a default.
The default was directly attributable to Western sanctions imposed on Russia after the Ukraine war. The Russian government had previously sent money to repay the debt in dollars and euros to Euroclear, an international depository settlement company, but investors reportedly did not receive the money because of Western sanctions. Euroclear previously said that due to Western sanctions, the Euroclear account and assets of the Russian State Depository for Depository (NSD) were frozen, making it impossible to liquidate Russian financial product transactions. “It is very rare for a country to be forced into default by a foreign country,” investment industry insiders told Bloomberg.
Russia’s default on foreign debt is the first since 1918, when the Bolsheviks, the leading forces of the Russian revolution, refused to pay the debts of the tsar (emperor) system because they could not accept it. A default, known as a “national default,” usually has a huge impact on the country in question. However, experts believe the impact of the outbreak on Russia will be limited. This is because Russia has already been isolated from the international financial system, with most countries unable to borrow money and freezing foreign assets due to Western sanctions. The media also emphasized the symbolism of the first foreign debt default in more than 100 years. Axios, an American online media outlet, said, “This default is a predictable result of the economic sanctions imposed on the Ukraine invasion. commented “Given the damage already done to the economy and markets, default is symbolic,” Bloomberg said.
Russia declared a moratorium on debt payments on ruble-denominated bonds in 1998. Russia suffered a severe blow to its raw material exports due to the Asian financial crisis, and was unable to repay its actual debt due to the depreciation of the ruble. At that time, Long Term Capital Management (LTCM), a large US hedge fund company, suffered massive losses and went bankrupt. The amount of derivatives that this institution traded with foreign banks alone amounted to $1.25 trillion (about 1603 trillion won). In response, the World Bank and the International Monetary Fund (IMF) provided bailout loans to Russia, and Russia emerged from the crisis by rising oil prices and a trade surplus that began in 1999. However, the situation now is different from that at the time as it is not that they are unable to pay the money, but that they cannot repay it due to artificial sanctions.
The Kremlin refused to declare a default on the 27th, saying that Russia had paid interest on bonds maturing in May. Kremlin spokeswoman Dmitry Peskov told reporters on the same day: “There is no basis for calling this situation a default. “The default claim is completely wrong,” he said. Russia’s finance minister, Anton Siluanov, also criticized the situation the day before, saying, “The West has created an artificial barrier to label Russia as a default.” Russia also codified a plan to pay rubles to bondholders under a decree signed by President Vladimir Putin last week.