Two Russian transfers did not reach creditors for the first time since the entry into force of international sanctions on payment systems. “A farce”, denounces Moscow.
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Is Russia headed for default? On Monday June 27, the Kremlin admitted that two installments had not reached creditors by the previous day’s deadline, due to international sanctions targeting the country. “The failure of investors to obtain the money is not the result of non-payment, but is caused by the action of third parties, which is not directly considered (…) as a case of default”the Russian Finance Ministry insisted in a statement on Monday.
Due to the sanctions, the country can no longer make payments in Western currencies to repay interest and its foreign debt denominated in dollars or euros. These two payments are the last that Moscow has tried to make in foreign currencies. Since the end of May, Russia has said that it will be repaying its dollar or euro debt in rubles, which also exposes it to default. This year, the country should probably miss all the deadlines related to its external debt, and relating to hundreds of millions of dollars.
Moscow therefore insists on the technical, and not financial, nature of these difficulties. “The international payment and clearing systems obtained the funds on time and in full and had the legal and financial means to transfer the funds in question to the recipients”, denounced the Russian Ministry of Finance. And Dmitry Peskov, the spokesman for President Vladimir Putin, judged “illegitimate” claims by financial news agencies that had declared Russia in default.
Since the three major international financial rating agencies no longer rate Russia, it is up to an organization bringing together major international banks (Credit Derivatives Determinations Committees) to assess whether or not Russia misses payments to its creditors.
In 1998, nearly two years before Vladimir Putin arrived in the Kremlin, Russia was forced to waive payment deadlines on its national debt and a moratorium on its foreign debt, a humiliation. The country had to wait twelve years to be able to borrow again on the international markets. Russia’s last default on its foreign debt dates back to 1918, after Lenin’s decision not to pay the debts of the tsarist regime.