Russia arranged earlier this week to repay international bonds totalling $649 million in roubles, even though payment was due in U.S. dollars
Russia has not defaulted on its external debt since the aftermath of its 1917 revolution, but its bonds have now emerged as a flashpoint in its economic tussle with Western countries. A default was unimaginable until recently, with Russia rated as investment grade in the run up to its Feb. 24 invasion of Ukraine, which Moscow calls a “special military operation.”
Coming up with an alternative, Russia placed the rouble equivalent of those payments for bondholders from so-called unfriendly nations in special accounts at its National Settlement Depository.Analysts say Russia has the means and ability to pay. The country receives billions in U.S. dollars in revenue from energy exports, and while around half its foreign exchange reserves are frozen, it has hundreds of millions that are not.
All this means it looks like Russia could still make the payment, if it wanted to, according to analysts.At its most basic level, a default is a breach of contract, though the term can cover a variety of scenarios. “In theory, a default situation could be created but this would be a purely artificial situation,” Kremlin spokesperson Dmitry Peskov said on Wednesday. “There are no grounds for a real default.”Markets often look to credit-rating agencies to declare a default has occurred. However, a default is a state of affairs, not a credit rating, and with major ratings agencies having withdrawn ratings on Russia it is unclear what manner of announcements might be made.
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