In 1998, the ‘default’ in the crash of international oil prices… This time the situation is more serious.
Moody’s and Fitch downgraded to ‘speculative grade’
700 million dollar government bond maturing this month
In 1998, the crisis was overcome with Western help.
This year, it is even more cornered by all-round sanctions.
As the world’s three largest credit rating agencies downgraded Russia’s credit rating to ‘speculative grade’, Russia is in a position to worry about ‘national default’. The exchange rate, which was at the level of 75 rubles to 1 dollar before the war, soared and exceeded 100 rubles, causing severe chaos in various parts of Russia, such as a ‘dollar and spot hoarding’ phenomenon.
In this situation, even the national credit rating has fallen sharply, and there is a forecast that ‘default on government bonds’ (default) has become a reality.
According to Reuters on the 3rd, credit rating agencies Moody’s and Fitch downgraded Russia’s credit rating by six places each. Fitch pointed out that the country’s credit rating has been downgraded six places at a time since Korea during the 1997 International Monetary Fund (IMF) bailout crisis. Last week, Standard & Poor’s (S&P) downgraded Russia to speculative grade.
On the same day, Fitch lowered Russia’s credit rating from ‘BBB’ to ‘B’ and raised it to ‘negative observation’. Moody’s downgraded Russia’s rating from ‘Baa3’ to ‘B3’.
JP Morgan analyzed that the possibility of default on Russian government bonds in the international bond market has greatly increased due to economic sanctions. Russia’s $700 million (about 840 billion won) of government bonds are due to mature this month, but there is also a forecast that it will not be easy to repay the debt due to economic sanctions from the West.
Russia experienced a sovereign debt default due to the financial crisis in August 1998. International oil prices, which were the mainstay of the economy, plummeted 35% from January of that year, and foreign exchange reserves plummeted, causing the ruble to plummet by 74%. However, at that time, Western countries were cooperative in economic recovery, such as significantly reducing Russia’s external debt and providing bailout resources. With this help, Russia managed to overcome the crisis by repaying its dollar-denominated bonds. However, the situation is different now. The United States and the European Union (EU) are taking the lead in economic sanctions, and neutral countries such as Switzerland, Finland and Sweden have also joined, so their position has greatly narrowed. There are only a handful of countries, such as China, where Russia can reach out.
Meanwhile, financial index companies Morgan Stanley Capital International (MSCI) and Financial Times Stock Exchange (FTSE) Russell also announced on the same day that they were withdrawing Russian stocks from their indices. The Russian stock market will be excluded from the MSCI Emerging Markets Index from the 9th. MSCI said the overwhelming majority of market participants consider the Russian stock market a ‘not a place to invest’. FTSE Russell has decided to exclude Russian stocks from the index from the 7th.
Countries included in the MSCI Emerging Markets Index, such as Korea, are also expected to benefit. Kim Yong-koo, a researcher at Samsung Securities, said, “Korea accounts for 11.95% of the MSCI Emerging Markets Index’s total tracking funds of $1.8 trillion (KRW 2200 trillion). We can expect an influx of money,” he said.
Reporter Jeong Hyun-yong
