finance
For the first time, Russia is servicing national debt only in rubles
For the first time, Russia has only paid its foreign debt in rubles instead of US dollars. Photo: Sven Hoppe/dpa
© dpa-infocom GmbH
Western sanctions over the war of aggression against Ukraine are jeopardizing Russia’s debt service. How much longer can Moscow prevent a default? And how risky would another state bankruptcy be for the financial markets?
For the first time, Russia has only paid its foreign debt in rubles instead of US dollars. Altogether it concerns payments for Eurobonds over 649.2 million dollar (595.3 million euro).
This time, the Russian Ministry of Finance transferred the amount, which was actually to be paid in dollars, in rubles after an American correspondent bank refused to execute the payment order in US currency. The background to this are the Western sanctions against Russia’s war in Ukraine.
Kremlin spokesman Dmitry Peskov said on Wednesday that there was no reason for a national bankruptcy. “Russia has all the necessary resources to pay off its foreign debt,” he said. At the same time, he complained that “significant sums of our reserves” were frozen and blocked abroad.
If this situation persists, Russia will be forced to switch to ruble payments, Peskov said. An “artificial bankruptcy situation” could only be brought about if the ruble payments were also blocked.
On Wednesday, White House spokeswoman Jen Psaki said Moscow had a choice between slowly draining its valuable foreign exchange reserves or declaring national bankruptcy.
Experts and rating agencies have been warning of an impending bankruptcy in Russia for weeks given the severely restricted access to currency and gold reserves. However, due to the exceptional situation caused by the sanctions, it should initially only be a question of a technical or partial payment default, not a state insolvency in the strict sense.
On the financial markets, the risk of a Russian default is firmly factored in, but is manageable due to the relatively small number of international ties. Most analysts do not expect a financial market shock. The head of the International Monetary Fund IMF, Kristalina Georgieva, described the involvement of international banks in Russia in March as “definitely not systemically important”.
According to the most recent data from the Deutsche Bundesbank from November 2021, the claims of German banks on Russia amounted to around 6 billion euros. Including the claims of their foreign branches and subsidiaries, it was around 7.5 billion euros. According to the Bundesbank, this is just under 0.4 percent of the total foreign claims of German institutions. The securities of public households in Russia, which also include government bonds, at German banks amounted to 119 million euros.
Russia’s last default was in 1998 as a result of falling oil prices and the Asian crisis, but at that time it only affected internal debt in rubles. Should the country fail to pay its bills to international creditors, it would be the first time since the Russian Revolution in 1917 that its foreign debt would default. As a rule, however, there is a 30-day default period for government bonds before a default occurs.