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Russia On Verge Of Debt Default

Russia is on the verge of its first debt default since 1998, with a $100 million interest payment due on Sunday almost certain to be missed.

Russia has the money and is willing to pay, but sanctions make payments to international creditors impossible.

The Kremlin is determined to avoid the country’s first default since 1998 and a major blow to its reputation.

The situation has been described as a “farce” by Russia’s finance minister.

Since the sanctions imposed by the US and EU following the invasion of Ukraine, Russia has appeared to be on an unavoidable path to default.

These hampered the country’s access to international banking networks, which would process payments from Russia to investors worldwide.

The Russian government has stated that it wishes to make all payments on time, and thus far it has been successful.

Around $40 billion of Russia’s debts are in dollars or euros, with roughly half held outside the country.

The default would be the first since the chaotic end of Boris Yeltsin’s regime in 1998.

Default appears to be unavoidable.

The US Treasury decided not to renew the special exemption in sanctions rules that allowed investors to receive interest payments from Russia, which expired on May 25.

The Kremlin appears to have accepted this inevitability as well, issuing a decree on June 23 stating that all future debt payments would be made in roubles via a Russian bank, the National Settlements Depository, even if contracts stated that they should be made in dollars or other international currencies.

According to the RIA Novosti news agency, Finance Minister Anton Siluanov admitted that foreign investors would “not be able to receive” the payments.

He explained that this was due to two factors. “The first is that foreign infrastructure – correspondent banks, settlement and clearing systems, and depositories – are not permitted to conduct any operations involving Russia. The second is that we expressly prohibit foreign investors from receiving payments from us.”

Because Russia wants to pay and has enough money to do so, he denies that this is a genuine default, which occurs when governments refuse to pay or their economies are so weak that they cannot find the money.

READ MORE: US, UK Sets To Impose Ban On Russian Gold Import

“Everyone in the know understands that this is not at all a default,” he told RIA Novosti. “This entire situation appears to be a farce.”

It’s unclear how a default would be declared officially.

Credit rating agencies, which assess borrowers’ creditworthiness, would normally play the role of officially declaring a default, but EU sanctions prohibit them from covering Russia.

And the Credit Derivatives Determinations Committee, which determines whether payments are missed and whether investors can make claims on insurance-like contracts known as Credit Default Swaps, has already ruled that Russia failed to pay, after it failed to pay around $2 million in interest on a late payment in May.

Alternatively, the creditors could declare a default and demand that Russia repay the full amount of the debts immediately. According to Mr Auslander, other creditors to Russia could also seek immediate repayment of their debts under so-called cross-default provisions.

If Russia fails to pay, they may seek restitution in court.

Though default would be a symbolic blow, Russia would face few immediate practical consequences.

Defaulting countries typically find it impossible to borrow more money, but sanctions have effectively barred Russia from borrowing in Western markets.

In any case, it is said to earn about a billion dollars per day from fossil fuel exports, and Siluanov stated in April that the country has no plans to borrow more.

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Russia is on the verge of its first debt default since 1998, with a $100 million interest payment due on Sunday almost certain to be missed.

Russia has the money and is willing to pay, but sanctions make payments to international creditors impossible.

The Kremlin is determined to avoid the country’s first default since 1998 and a major blow to its reputation.

The situation has been described as a “farce” by Russia’s finance minister.

Since the sanctions imposed by the US and EU following the invasion of Ukraine, Russia has appeared to be on an unavoidable path to default.

These hampered the country’s access to international banking networks, which would process payments from Russia to investors worldwide.

The Russian government has stated that it wishes to make all payments on time, and thus far it has been successful.

Around $40 billion of Russia’s debts are in dollars or euros, with roughly half held outside the country.

The default would be the first since the chaotic end of Boris Yeltsin’s regime in 1998.

Default appears to be unavoidable.

The US Treasury decided not to renew the special exemption in sanctions rules that allowed investors to receive interest payments from Russia, which expired on May 25.

The Kremlin appears to have accepted this inevitability as well, issuing a decree on June 23 stating that all future debt payments would be made in roubles via a Russian bank, the National Settlements Depository, even if contracts stated that they should be made in dollars or other international currencies.

According to the RIA Novosti news agency, Finance Minister Anton Siluanov admitted that foreign investors would “not be able to receive” the payments.

He explained that this was due to two factors. “The first is that foreign infrastructure – correspondent banks, settlement and clearing systems, and depositories – are not permitted to conduct any operations involving Russia. The second is that we expressly prohibit foreign investors from receiving payments from us.”

Because Russia wants to pay and has enough money to do so, he denies that this is a genuine default, which occurs when governments refuse to pay or their economies are so weak that they cannot find the money.

READ MORE: US, UK Sets To Impose Ban On Russian Gold Import

“Everyone in the know understands that this is not at all a default,” he told RIA Novosti. “This entire situation appears to be a farce.”

It’s unclear how a default would be declared officially.

Credit rating agencies, which assess borrowers’ creditworthiness, would normally play the role of officially declaring a default, but EU sanctions prohibit them from covering Russia.

And the Credit Derivatives Determinations Committee, which determines whether payments are missed and whether investors can make claims on insurance-like contracts known as Credit Default Swaps, has already ruled that Russia failed to pay, after it failed to pay around $2 million in interest on a late payment in May.

Alternatively, the creditors could declare a default and demand that Russia repay the full amount of the debts immediately. According to Mr Auslander, other creditors to Russia could also seek immediate repayment of their debts under so-called cross-default provisions.

If Russia fails to pay, they may seek restitution in court.

Though default would be a symbolic blow, Russia would face few immediate practical consequences.

Defaulting countries typically find it impossible to borrow more money, but sanctions have effectively barred Russia from borrowing in Western markets.

In any case, it is said to earn about a billion dollars per day from fossil fuel exports, and Siluanov stated in April that the country has no plans to borrow more.

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