CNN Business: Default Up As Russia Can't Pay Creditors In Dollars
Russia needs to pay her creditors on Mar. 16, 2022 more than $117 million in interest payments on dollar-denominated government bonds and if she insists on paying them with rubles, then the country would be declared in default.
Photo Insert: Moscow's International Business Center
Writing for CNN Business on Mar. 15, 2022, Allison Morrow says the payments on US bonds have to be made in dollars. Tragically, Russian President Vladimir Putin has banned any payment of foreign debt in anything but rubles in an effort to shore up the currency in the face of punitive sanctions from the West.
Russia has a total of $40 billion in debt as of yearend 2021. A default happens when a borrower cannot pay the interest or principal on its debt on time.
Countries regularly issue bonds, also known as debt, denominated in foreign currencies to fund their own domestic projects and then make payments on that debt over time. It is government’s version of a credit card.
Since 2014, the last time the West sanctioned Russia over its annexation of Crimea, the Kremlin has built up about $640 billion in foreign reserves. About half of those funds are now frozen under Western sanctions imposed after the invasion of Ukraine. Moscow will try to pay creditors in rubles rather than dollars or euros, at least until the sanctions are lifted, Russian finance minister Anton Siluanov said on Sunday, Mar. 13.
Since Russia’s invasion of Ukraine last month, all three major ratings companies — Fitch, S&P, and Moody’s — have downgraded Russia from investment grade to what’s known as junk.
The International Monetary Fund’s managing director, Kristalina Georgieva, said a financial crisis was unlikely to develop "for now," saying that the exposure of Western banks was "not systemically relevant."
Even if Moscow halts payments to foreign investors on all of its sovereign debt, that would amount to a roughly $60 billion default. CNN’s Charles Riley said the amount would be in the same ballpark as Argentina's default in 2020, which turned out to be a non-event for global markets.