Russia, a country facing stringent financial sanctions, has defaulted on its foreign currency sovereign debts for the first time in over a century, Bloomberg reported on Monday. Though the country has enough funds available for the payout, payment restrictions have become a barrier to the distribution of funds to international creditors.
The country missed the payment deadline on Sunday of around $100 million of snarred interest payments due on May 27. The missed payment after the grace period of 30 days is considered a default.
Credit agencies usually officially certify such payment defaults. However, sanctions on Russia by the western governments have forced them to withdraw ratings on any entities in the country.
Russia already sent the international interest payments to Euroclear before the deadline, but that payment is stuck there, and the creditors failed to receive it. Euroclear did not confirm the status of the Russian government’s payment but said it adheres to all sanctions.
Additionally, the news agency Reuters reported that some Taiwanese holders of Russian bonds denominated in euros did not receive their payment past the Sunday deadline.
Disconnected from International Payments Network
The Russian financial system has been crippled by the rampant western sanctions imposed over the past few months in response to President Putin’s decision to invade Ukraine. The Russian Central Bank managed to recover the plummeting value of the ruble with some unorthodox decisions, but the country is still disconnected from the international financial network.
On Thursday, the Russian Finance Minister, Anton Siluanov called the default situation a 'farce' and confirmed that the county has the means and will meet its payment obligations.
“Anyone can declare whatever they like,” he said. “But, anyone who understands what’s going on knows that this is in no way a default.”
The latest default to international creditors by the Russian government happened after more than a century. In 1918, Vladimir Lenin-led Bolsheviks refused to accept the nation’s staggering debt that was taken by the Czars. However, the country defaulted on a $40 billion local debt in 1998 amid a financial crisis and a falling ruble.
