Eastern Europe

Russian Defaults On Its Small Amount Of Foreign Debt As West Keeps Foreign Assets Frozen

Image by Katkov Yury

Since the infamous Russian default in the 1990s, Moscow has kept its foreign-currency-denominated debt rather small, and for the most part, has managed its fiscal affairs rather well. Russian is notorious for large ‘rainy day’ funds, bolstered by hydrocarbon revenue.

Currently, Moscow holds over $600B offshore in foreign currency and gold, all of which Western governments have frozen due to the Russian invasion of Ukraine.

This has forced Moscow to default on a foreign debt payment for the first time since the Bolshevik Revolution. However, since the Kremlin is frozen out of foreign capital markets, this will make little difference.

On 27 June 2022, Russia has defaulted on its foreign debt for the first time since the 1917 revolution, further alienating the country from the global financial system after sanctions imposed over its war in Ukraine, reported Inkerman.

The country missed a deadline of Sunday night to meet a 30-day grace period on interest payments of $100m on two Eurobonds originally due on 27 May 2022.

Russia’s efforts to avoid what would be its first major default on international bonds since the Bolshevik revolution more than a century ago hit an insurmountable roadblock in late May when the US treasury department’s office of foreign assets c (OFAC) effectively blocked Moscow from making payments.

Russia, which has offered to pay the debts in roubles, calls any default artificial because it has the money to pay its debts but says sanctions have frozen its foreign currency reserves held abroad, added Inkerman.

There is an old saying, ‘If you are going to attempt to shoot the king, you had better not miss’.

After shooting Russia with every financial weapon it has, the West is now impotent, as Moscow will move further East to its new benefactor — China. Western capitols may also be out the $40B Russia owes it.

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