CBR 28 February 2022 in Moscow (AFP/Natalia KOLESNIKOVA)
On Monday, Russia accused the West of wanting to provoke an artificial default through its sanctions freezing Moscow’s assets abroad, rekindling memories of the humiliating 1998 default.
“Statements that Russia cannot fulfill its obligations on the state debt are not true,” the Finance Ministry insisted, adding that “the freezing of foreign currency accounts of the Bank of Russia and the government can be regarded as a desire of foreign states to cause an artificial default” .
For Russia, it is about her honor, not just about her future access to financial markets.
For two decades, and especially since the 2014 crisis, Moscow has indeed struggled to create pristine financial health with a very low debt ratio and over $600 billion in reserves created by oil rents.
But today, in retaliation for Russia’s military intervention in Ukraine, some $300 billion of reserves held abroad have become the Achilles’ heel of Russia’s economic fortress, frozen under Western sanctions that defy Russia. comply with several deadlines for repayment of debt in foreign currency during March-April.
– “Unique Situation” –
If Eurobonds issued since 2018 can be redeemed in rubles, then this does not apply to the first maturity, which occurs on Wednesday, with a refund of $117 million.
“This is a unique situation where the sanctioning party will decide on a Russian default in 2022,” Elina Rybakova, deputy chief economist at the International Financial Institute (MIF), said on Monday.
She notes that “unless the US Treasury allows $300 billion of Russia’s frozen assets to be released to pay for less than $20 billion of foreign holdings of Russian Eurobonds, we are likely to fail.”
But there remains a certain uncertainty around the first term on March 16, the situation is unprecedented. JPMorgan analysts believe that such payouts should be possible.
The US Treasury clarifies that interest payments are possible until May 25, 2022 for US citizens on bonds issued before March 1, 2022 by the Central Bank of Russia, the Russian sovereign wealth fund, or the Treasury Department.
After that date, they will need authorization to continue receiving these payments.
Schedule of the nearest maturities of Russian debt securities (AFP/ )
Western sanctions paralyzed part of the Russian banking and financial system and caused the collapse of the ruble. Default on payments automatically breaks the state of the financial markets and jeopardizes its payback for years.
– 1998 disparagingly –
“This will be the first sovereign default by Russia since 1998 (when it defaulted on its domestic debt) and the first sovereign default on foreign currency debt since Lenin abandoned government obligations in 1918,” analysts at Capital Economics said in a note. note on Monday.
After the collapse of the USSR, Russia alone inherited $70 billion of debt from the vanished empire. Weight that took more than a quarter of a century to get rid of.
The painful and chaotic 1990s culminated in a humiliating domestic debt default in 1998, when the Russian economy was weakened by, among other things, the Asian financial crisis and the colossal cost of the first war in Chechnya.
It took Russia twelve years to return to borrowing on international markets with a new bond issue in 2011.
In the early 2000s, the country benefited from an influx of petrodollars thanks to a surge in oil and gas prices, which will allow it to build up reserves and finally turn the page of Soviet debt with the last payments in 2017.
Russia has made it a point of honor to restore its reputation as a flawless borrower, an effort that risks being undermined.
“Russia has the money to pay off its debt, but it does not have access to it. What worries me most is that there are consequences that go beyond Ukraine and Russia,” IMF chief Kristalina Georgieva said in an interview with CBS on Sunday. .
According to Capital Economics, the Russian default “won’t affect the ability of the Russian government to finance itself (apart from what the sanctions have already done), and it’s unlikely that there will be any major consequences anywhere in the world.”
“Perhaps the biggest risk is that this is a prelude to defaults by Russian companies, which have foreign debts more than four times higher than the state,” these analysts estimate.