Russia defaults on foreign debt for first time in a century

Russia has officially defaulted on its foreign debt, marking the first time in a century that the country has failed to complete its payments.

Russia reportedly defaulted on $100 million of coupons on two Eurobonds due in May, after which the country received a 30-day period to make the payments, which expired on Sunday.

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Putin’s administration has been walking a razor’s edge since the invasion of Ukraine in late February, however the crippling of Russian access to the West has served to server his government’s capabilities to make good on their debt.

Sources told Reuters that Taiwanese holders of Russian Eurobonds reported not receiving the scheduled interest payments due last month.

The report represents the first time since the Russian revolution in 1917 that the Russia has defaulted on its foreign debt.

Biden’s White House essentially cut Putin’s access to creditors in the West, which meant the government was unable to pay off its debts despite protests that it had the financial resources to settle them.

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Russia argued it would pay its debt in roubles, and said it had the cash to pay off its debts, however its foreign currency reserves held abroad remain frozen on account of sanctions.

“It’s a very, very rare thing, where a government that otherwise has the means is forced by an external government into default,” said Loomis Sayles senior sovereign analyst Hassan Malik to Bloomberg. “It’s going to be one of the big watershed defaults in history.”

Russia currently owes approximately $40 billion in foreign bonds, and held around $640 billion in gold reserves and foreign currency before its invasion of Ukraine. The majority of its assets were frozen earlier in the Ukraine conflict.

Companies have already fled from Russia since the start of the war, and western sanctions have served to cripple trade across international borders, so it remains to be seen how the long-term ramifications of this development will impact the Russian government going forward.

The typical risk of a country defaulting would be that states lose confidence in their ability to pay, and block their access to bond-market borrowing until a good amount of confidence is regained in the international lending community. However, Russia has already become a pariah to such a level in the international community that this issue is the least of its concerns.

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