The financial storm in Russia continues. One week after the invasion of Ukraine began and four days after major Western sanctions were announced, the Moscow Stock Exchange remained closed on Wednesday (March 2nd), the ruble fell 20% and now the risk of default by the Russian state is looming. “It takes us back more than two decades.”, notes a source from the bank in Moscow. In 1998, the state failed to repay its debt and went through a major financial crisis.
On Tuesday night, Russia’s central bank announced a major measure: foreigners who hold Russian government bonds in rubles (known as slang OFZ) will no longer receive payments. They will not accept “coupons” due to them, indefinitely. The measure does not apply to bonds in foreign currencies (dollars, euros, etc.), which is the official definition of non-payment of a country, but threw a serious chill in the financial system. “This is a defect of fact, organized, notes Ludovic Subran, chief economist at Allianz. And are we really sure that they will really pay for the foreign currency bonds? »
Although a little more cautious, Vincent Shino, director of research at Generali Investments, agrees: “There are a combination of factors stemming from Russian sanctions and retaliatory measures that raise concerns about non-compliance. » The same analysis by William Jackson of Capital Economics: “The government or business is likely to fail repayment of liabilities or do not want to make it increase sharply. »
“significant shock”
Following the announcement of sanctions, Russia is facing a real hemorrhage of currencies and the beginning of a banking panic. One of the most obvious signs of this is the long queues in front of ATMs across the country. According to Allianz, which bases its calculations on the interventions of the Russian central bank, about 12% of Russian bank deposits were withdrawn in four days.
To control this panic, Russia’s central bank needs to multiply capital controls. It forces Russian companies that have foreign exchange earnings to convert 80% into rubles. It blocked the savings of foreigners living in Russia by banning them from selling their financial securities held in the country. The Russians themselves no longer have the right to send money abroad. The authorities want to do everything to keep the euro or dollars, which are now very difficult to obtain.
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