After relentless Western sanctions that ended payment routes to its overseas creditors, Russia defaulted on its foreign-currency sovereign debt for the first time in a century.
It took months for the country to find ways around the sanctions imposed after the Kremlin invaded Ukraine. For the snared interests payments of around US $100 million that expired May 27, the country had been given a grace period until Sunday. Since Russia failed to make any payments until yesterday, this will be considered a default.
As a result, the country is rapidly becoming an economic, financial, and political outcast. Since the start of March, Eurobond prices are at distressed levels, the central bank’s foreign reserves remain frozen, and most of the nation’s banks are cut off from the global financial system.
Given the damage already done to the economy and markets, the default is also primarily symbolic for now, and matters little to Russians dealing with double-digit inflation and the worst economic contraction in years.
Russia has resisted being labeled a default, saying it has the funds to pay any bills and has been forced to do so. Trying to find a way out, it announced last week that it would begin servicing its $40 billion of outstanding sovereign debt in rubles, criticizing the West for artificially creating a ‘force-majeure’ situation.
Financial experts believe that this would be one of the most remarkable defaults in history. They believe, that a country which has the means hardly ever gets pressured by another government into defaulting.
During Russia’s financial crisis and ruble collapse of 1998, President Boris Yeltsin’s government defaulted on $40 billion of its local debt.
The country’s debt load was staggering during the reign of Czarist-era Russia, and it fell into default when the Bolsheviks under Vladimir Lenin repudiated it in 1918.
