Russia is suffering a historic blow. The Western blockade of the ruble due to the invasion of Ukraine is going to accelerate the country’s first non-payment of foreign debt since 1917, in the midst of the Great War. Credit rating agency S&P warned last Friday about the risk of a “selective default” when Moscow’s attempt to meet two commitments totaled $ 649 million. Non-payment can definitely come in three weeks when the 30-day time limit that technically works in these cases is met.
Default insurance for the last few days, indicated on the Russian debt (CDS or Credit default swapIn English) reached a 99% probability, “MUFG Bank, Japan’s largest bank, said in a report released Monday.
Russia last defaulted in 1998 due to the cost of the war in Chechnya, and it took 12 years to regain access to international markets, according to Moody’s Debt Rating Agency. So he could not pay only the interest that he had to pay in rubles.
The sequence of events ends in three weeks, in the technical default, or “selectively,” as S&P called it on Friday. First, on April 5, the U.S. Treasury blocked the payment of dollar debt from Russian government accounts in U.S. banks.
The next day Russia tried to meet a two-dollar commitment of 649 million rubles. But Russian currency is also not currently accepted in this type of operation. For this reason, from that moment on, a 30-day grace period was opened Default.
On April 8, the S&P warned of default and revoked Russia’s sovereign debt rating, “in line with EU-approved sanctions that prevent Ratings To Russian subjects. “
The threat emerged as early as mid-March, “when the first interest payments came after the invasion of Ukraine,” recalls MUFG Bank, which explains that at that time the country “showed that it could still meet creditors in foreign currency.”
A month later the context of the sanctions is more unfavorable, although Russia’s problem is not a lack of funds. The latest data from the country’s central bank showed a $ 36.7 billion drop in foreign exchange and gold reserves in recent weeks to $ 606.5 billion as of April 1, the lowest level since August 2021. This figure should be added to the Russian sovereign wealth fund. , Which amounts to $ 185,000 million.
Russia’s finance ministry said last week that on April 6, it had transferred ruble liabilities to foreigners to a special account in the country’s national payment repository, citing a local ordinance that allows foreign debt to be paid in its own currency. “However, none of the creditors were allowed to collect in rubles,” the MUFG said.
“Russia’s sovereign default was very unlikely before the invasion,” said Eric Dor, director of economic studies at the IESEG School of Management. Strictly speaking, Russia would not have a debt problem: “Debt as a percentage of GDP would be limited to 13.8% in 2019, 19.3% in 2020 and 17.9% in 2021,” the expert recalled.
“If Russia does not pay its debt in dollars, it is unclear how the problem will be solved and a long and difficult process could begin,” the Bank of Japan warned in a report.
“Of course, while the impact of global banks on Russia is not a systemic risk, default could eventually trigger a global sovereign debt crisis if investors begin to avoid risk and more developing countries are excluded from capital markets,” he said.
International Monetary Fund Managing Director Kristalina Georgieva estimates that international banks have an impact of $ 120,000 million on Russia, an amount she considers insufficient to provoke a global crisis, given that, although large, it is not “systemically relevant”. .
The most identified countries will be Italy (approximately 22,000 million euros), France (another 22,000), Austria (15,000) and the United States (13,000 million), in this order. Spanish financial institutions have almost no Russian debt.
Although Russia is heading for “selective” default, two companies in the country are already in technical condition Default: Russian Railway and Eurochemistry. The first admitted his inability to pay the Swiss francs on March 14 “due to legal and regulatory obligations in the network of banking correspondents.” The second experienced a similar situation. The “grace period” for both has already passed, according to ISDA (Association of International Swaps and Derivatives, in English).
Statistically, Moody’s collects that the recession has been accompanied by almost 90% of 42 defaults worldwide since 1997, and gives us another fact: 75% of the collapse of countries since 1983 has led to default.
“The market exclusion period and financing costs depend on the external environment and creditors’ expectations for future policies, growth and debt sustainability,” concludes a team of analysts at Moody’s.
On Tuesday, the head of the Russian Chamber of Accounts, Alexei Kudrin, calculated that Russia’s gross domestic product (GDP) would decline by about 10% in 2022. According to the latest forecast of the World Bank, the collapse of economic activity in the country may deepen to 11.2%.
Source: El Diario
I am an experienced and passionate journalist with a strong track record in news website reporting. I specialize in technology coverage, breaking stories on the latest developments and trends from around the world. Working for Today Times Live has given me the opportunity to write thought-provoking pieces that have caught the attention of many readers.
