Russia Defaults on Foreign Debt for First Time since 1998

Russia is poised to default on its debt for the first time since 1998. 

It further alienates Russia from the global financial system after sanctions imposed over its ongoing war in Ukraine. 

Russia missed a deadline on Sunday night to meet a 30-day grace period on interest payments of $100 million on two eurobonds originally due on May 27. 

Russia’s efforts to avoid the default hit a roadblock in May when the Department of Treasury’s office of foreign assets control (OFAC) effectively blocked the country from making payments. 

Law experts said that a Russian default was expected. 

A formal default will be largely symbolic, because Russia cannot borrow internationally right now and does not need to due to oil and gas revenues. 

The Kremlin denied that it was at fault. Spokesperson for Russian President Vladimir Putin, Dmitry Peskov, called the claims “absolutely unjustified,” and said it was “not our problem” that sanctions had prevented intermediaries from transferring payments. 

Russia owes about $40 billion in foreign bonds. Before Russia invaded Ukraine, the country had about $640 billion in foreign currency and gold reserves. A lot of that is held overseas, and is frozen. 

Ukraine and some other countries want the frozen cash to be used to repair damage caused by Russia’s insurrection, and to compensate for Ukraine’s losses. 

Peskov called this theft. 

Once a country defaults on these types of payments, it can then be cut off from bond-market borrowing until the default is sorted and investors regain confidence in the government’s ability to pay. 

Sanctions against Russia by Western governments sent foreign companies fleeting from Russia and interrupted the country’s trade and financial ties with the rest of the world. Default is expected to be one more symptom of that isolation and disruption. 

Analysts say that a Russian default will not have the kind of impact on global financial markets and institutions that came from its default in 1998, the last time it defaulted. 

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