The economy is the other side of the war in Ukraine, the other front, where you play by different rules, but even there you can hurt your enemy. The sanctions imposed by the Russian Federation by the West are apparently showing the first signs.
In fact, the rating agency S&P downgraded Russia’s longterm foreign currency debt from “Cc” to “Sd” (selective default). The decision will be made after paying in rubles and not in dollars the issues “Russia2022” and “Russia2042”, the coupons of which due on April 4 were worth almost 595 million euros. In practice, the decision came after Russia began paying its foreign debt in rubles. But why did he do it? The insolvency is certified, but “selectively”, ie limited to a part of the securities issued.
Moscow is not repaying its foreign debt in dollars (as it has been doing until now) after the United States blocked Russia from making payments from current accounts in US banks. So Moscow is forced to draw on its dollar reserves, which will sooner or later be exhausted, and in any case fewer dollars will be used for the war. It’s not that Russia doesn’t have money. It cannot use them because of the sanctions and there is a risk of default.
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The agency said in a statement that it is not expected that “investors will be able to convert into dollars the payment made in rubles equal to the amounts originally due, or that the government will convert these payments within a 30day grace period.” in part because sanctions against Russia are expected to tighten in the coming weeks, hampering Russia’s willingness and technical capacity to honor the terms and conditions of obligations to foreign debtors. Although S&P “believes that monies transferred by the Russian government to Russian national accounts for debt payments on local currency bonds (OFZ) may not be accessible to some or all nonresident bondholders, S&P does not currently have access to the information. finally on the payment process. For this reason, S&P downgraded the unsolicited rating of the foreign currency issuer for Russia”.
According to the Observatory of Italian Public Finances at the Catholic University, “if Russia defaults, the risks of a widespread financial crisis are very low as the national debt to foreign countries is just over $100 billion. The number rises enormously to 495 billion dollars if you take into account the events in Russia, both public and private, including the bonds of its companies, which are threatened with default, and the Western sanctions themselves. It cannot be ruled out that there will also be ” serious imbalances on the energy and metals markets”.