Russia seems to be lacking. Here’s why he refuses to acknowledge it: NPR

Russian President Vladimir Putin meets with the head of the Russian Federal Financial Supervisory Service, Yury Chikhanchin, at the Moscow Kremlin on Monday.

Mikhail Metzel/Sputnik, Kremlin swimming pool photo via AP


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Mikhail Metzel/Sputnik, Kremlin swimming pool photo via AP


Russian President Vladimir Putin meets with the head of the Russian Federal Financial Supervisory Service, Yury Chikhanchin, at the Moscow Kremlin on Monday.

Mikhail Metzel/Sputnik, Kremlin swimming pool photo via AP

Russia appears to have defaulted on its international debt for the first time in more than a century, after Western sanctions made the country’s efforts to pay its foreign creditors impossible.

Here is what happened

Like any country, Russia sold bonds to foreign and domestic investors to support its economy, promising to pay interest in euros and dollars. But after Russia invaded Ukraine in February, the United States and Europe pushed to weaken Russia’s war chest, freezing the country’s access to foreign currency assets held abroad.

This put Russia under scrutiny from the spring. But Moscow continued to pay its debts from national foreign exchange reserves. In May, however, the U.S. Treasury blocked even these transfers to American investors.

With that, two Russian interest payments – worth around $100 million combined – remained stuck after Russia withdrew them from its coffers. in May. Sunday night the clock ticked down on a grace period for those payments, and several reports say the bondholders have not received This money, which means a defect.

However, an official declaration of default is unlikely. The major rating agencies, which can usually declare, expose themselves to sanctions prohibiting them from carrying out commercial activities with Russia. And investors themselves may prefer to stay out of the spotlight as they figure out how they might get at least some of their money back.

Russia dismisses this as artificially fabricated by Western sanctions

The Kremlin said Monday that any default label was illegal because the country has money and tried to pay. The last attempt to circumvent involved Russia transfers rubles through its unauthorized banks and inviting creditors to convert the money into euros or dollars.

Russian Finance Minister Anton Siluanov been saying for weeks that any declaration of default would be contrived and fabricated by the West, because Russia had made the payment transfers before they were due, and it was up to the bondholders to claim their money.

Politically, any chaos by default would play into President Vladimir Putin’s frequent argument at home: that Western sanctions are less about his actions in Ukraine than about inflicting misery on the Russian people by any means necessary.

The United States and Europe, for their part, argue that Russia is in full control of its financial destiny by refusing to end its war in Ukraine.

Concretely, little impact is expected in the immediate future

Russia last defaulted on its international debt in 1918, after the Bolshevik Revolution. In 1998, Russia defaulted on ruble-denominated bonds, which rocked global markets on the eve of the Asian financial crisis.

But now Russia already faces most of the sanctions that could befall a failing economy. Big name companies like McDonald’s, Starbucks and Nike are gone. Its financial system is increasingly isolated. Rating agencies have already downgraded it.

Yet Russia continues to rake in money for its oil and gas exports. And he managed to artificially maintain the ruble at the strongest level in seven years. Some creditors, whose bonds face default, could eventually sue Russia for their money, but this process would be pretty messy and would probably take years.

Will the default shake Russia’s position with still friendly countries? Will Russia be able to borrow on the international market in the future? Will he need it given his energy income? Or will the sanctions end up emptying its coffers and pushing its economy to collapse?

These are some of the long-term questions, as investors decide whether they see default as Russia being cornered or further burning its own bridges with the world.

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