Russia’s external default looks almost inevitable, Western economists say. What will be the consequences?
Within three weeks, there is a high probability that Russia will be in a state of sovereign default. This is due to Eurobonds Russia 2022 issued in 2012 for ten years.
On April 4, repayment of the principal amount of debt in the amount of two billion dollars, as well as repayment of accrued coupon revenue, will take place. However, the US Treasury has banned the use of American currency blocked in Bank of Russia accounts for this purpose.
Some rating agencies write that Russia is already in default, others that it is inevitable. At the same time, Russia itself says it is not threatened by any default. Athletistic tells if there will be a default and what its consequences will be.
Russia’s default is almost inevitable
The international rating agency Moody’s has warned that Russia is in danger of default if it does not pay foreign currency on government bonds on May 4, Reuters reported.
Moody’s has not yet lowered Russia’s credit rating, but warns that if there is no repayment in the loan currency before May 4, when the extension period expires on Eurobonds redeemed by Russia on April 4 in rubles, ” this can be considered a default by definition.Moody’s.
Thus, the positions of the entire “big three” in relation to Russia’s public debt are almost identical. Standard & Poor’s already rated Russia’s foreign-currency bonds as “selective default” last week, as investors are unlikely to be able to convert rubles into “dollars equal to the amounts originally owed. “
According to S&P, a selective default is declared when a particular obligation is not met, but not on all of its debt.
Moscow has a 30-day grace period from April 4 to pay the funds and interest, but S&P does not expect Russia to fulfill its obligations given Western sanctions that undermine its “willingness and technical ability to comply. . “
Fitch also warned that non -payment of foreign currency debt would mean default.
Russia’s first external default in a century looks almost inevitable – it will happen with 90 percent certainty, Bloomberg wrote.
The Treasury of the Russian Federation has stopped paying dollar debts in Russian accounts with US banks. When the attempt to pay in foreign currency was blocked, Russia violated the terms of the two bonds by paying investors in rubles instead of dollars, the agency explained the reasons.
“This brought the default one step closer. The risks of default in the Russian Federation emerged after Russia’s invasion of Ukraine in February and sanctions against the aggressor – Russian banks, companies and oligarchs. The freezing of the central bank’s foreign exchange reserves have removed Russia from the global financial system, making it the country with the largest penalties in a matter of days, ”the newspaper added.
Russia has denied default and will sue
However, the Russian government has still not linked the country’s default, whose mechanism was launched on April 4, with sanctions imposed on it as against the aggressor country. On April 12, the Russian Ministry of Finance announced that the default was artificially created, and in general, information about it is untrue.
“The Russian Federation has not declared a default on its obligations under Eurobonds, the information is not true. It is clear that the barriers to making payments, repayment and service to the public debt of the Russian Federation in foreign currency was artificially created, ”the occupier’s Finance Ministry said.
Dmitry Medvedev, Deputy Chairman of the Security Council of the Russian Federation, considers a default in the country unlikely in the near future. “You can’t step into the same water twice,” he said.
Putin’s spokesman Peskov said Russia had all the necessary potential to fulfill its debt obligations, but “the unconstructive position of opponents could exacerbate the situation.”
In addition, Russia is ready to go to court if foreign states declare the Russian Federation bankrupt. “We will sue, … we will present in court our charges proving our efforts to pay both in foreign currency and in rubles,” said Anton Siluanov, head of the occupier’s finance ministry.
What are the consequences for the Russian economy?
The last time Russia defaulted on short-term bonds was in 1998. After that, a crisis broke out in the country: the currency dropped more than three times by the end of the year, the living standards of the population fell sharply. well, the banking system was paralyzed for several months.
In the 1990s, Russia’s budget revenues were low, as oil prices were at a record low of $ 16 per barrel. At the same time, in addition to the already large external debt, more and more new mortgage loans have to be taken in anticipation of rising oil prices.
However, with new loans, interest rates have only risen, new loans have almost stopped issuing, and the price of oil continues to remain at low levels. Russia then has no choice but to recognize the impossibility of repaying its previously assumed debt obligations and declare default.
The last default on foreign debt was more than 100 years ago when, in 1918, the Bolshevik revolutionaries under the leadership of Vladimir Lenin abandoned tsarist debt, shocking global debt markets, since Russia was then has one of the largest foreign debts in the world.
In this case, modern Russia has a way to pay off debts. In this case, the Central Bank of the Russian Federation has accumulated more than 600 billion dollars, but after sanctions by Western countries, which froze most of the gold and foreign exchange reserves and foreign exchange transactions, Russia is technically incapable of paying official obligations.
Since the default is technical, it will not cause a global crisis like in the late 1990s, and as long as the EU pays Russia for oil and gas, there will be money in Russia’s budget.
Russia still receives payments from the European Union for energy resources in the region of one billion dollars every day-since the beginning of the Russian Federation’s full-scale invasion of Ukraine, Europe has paid the aggressor of annual budget of the Ukrainian. Total external debt is $ 450 billion, and state debt is $ 56 billion.
The main consequence of default is the inability to lend to foreign markets. This possibility was de facto closed with the start of an invasion of Ukraine.
However, under conditions of resumption and intensification of sanctions, the standard of living of Russians will fall rapidly every month – prices are rising, and wages are actually falling due to the depreciating ruble.
The departure of Western companies, a ban on the import of parts and other trade restrictions are paralyzing most areas of Russian life-from buying diapers to making “no equal ”hypersonic missiles.
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Source: korrespondent
