Russia Defaults On Debt, The First Since 1918

Russia has defaulted on its foreign debt for the first time since the Bolshevik Revolution more than a century ago, further isolating the country from the global financial system in the aftermath of sanctions imposed in response to its war in Ukraine, Ken Sweet, Kelvin Chan and Stan Choe reported for the Associated Press (AP) on June 28, 2022.

Photo Insert: The Central Bank of Russia

Moscow owed $100 million in interest on two bonds, one in dollars and one in euros, which were due on May 27. The 30-day grace period ended on Sunday. Moody's, the rating agency, put the government in default on Monday, June 27.

Russia owes $40 billion in foreign-currency debts, over half of which were sold to international investors. According to Aya Batrawy of the Associated Press, Russia had roughly $640 billion in foreign money and gold reserves prior to the war, much of which was stored overseas and is now frozen.

Last month, the US Treasury Department stopped Russia's ability to repay billions of dollars in debt to overseas investors through American banks. In response, Russia's Finance Ministry stated that it will settle dollar obligations in rubles and provide “the opportunity for subsequent conversion into the original currency.”

Before Moody’s declaration, it was largely believed that Russia was in default.

“For all practical purposes, Russia is in default,” said Jay S. Auslander, a sovereign debt lawyer at the firm of Wilk Auslander in New York. “The 30-day grace period has expired. Bondholders do not have their money.”

Russia says it has the money to pay its debts but Western sanctions created “artificial obstacles” by freezing its foreign currency reserves held abroad.

Kremlin spokesman Dmitry Peskov told reporters Monday that “there are no grounds to call this situation a default,” saying Russia has paid but it could not be processed because of sanctions.

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