For several weeks, Russia managed to avoid the danger of non-compliance despite the sanctions imposed on it. And this because the US Treasury allowed the use of foreign currency held by Moscow abroad to settle foreign debts. Recently, that is no longer the case. In fact, the US ministry tightened sanctions in early April, not accepting more dollars held by Moscow in US banks.
A decision made when Russia had to pay a debt of almost 650 million dollars, specifically two bonds maturing in 2022 and 2042. Therefore, it settled them on April 4, but in rubles and not in US dollars, the minister announced. of Russian Finance, Anton. Silouanov. For the Moody’s agency, this payment in rubles “modifies the payment terms compared to the initial contracts and therefore can be considered as a breach” if Moscow does not cancel this debt before May 4, that is, the end of the grace period.
“The bond contracts do not contemplate any reimbursement in currency other than the dollar”, Moody’s continues. And to specify: “Although Eurobonds issued after 2018 allow redemptions in rubles under certain conditions, those issued before 2018 (including 2022 and 2042 bonds) do not contain this alternative currency clause or only allow redemption in other strong currencies (dollar, euro). , pound sterling or Swiss franc)”.
Russia is already in “selective default”, the last rung before general default
After this payment in rubles, the financial rating agency S&P Global Ratings had already announced on Saturday, April 9, that it had lowered Russia’s rating for its payments in foreign currency to the level of “selective breach”. With this selective default rating, S&P estimates that Russia has not been able to meet part of its obligations, but retains payment capacity on future maturities. However, this is the last note before the default value.
Let retrograde to several reviews by the different agencies (S&P, Fitch and Moody’s) after the beginning of the war in Ukraine, La Russie was rapproche donc encore a peu plus du défaut de paiement général, let play immediately by the notation agencies mi- March.
A country is considered to be in default when it cannot meet its financial commitments to its creditors, which may be States, financial institutions (International Monetary Fund, World Bank, etc.) or investors in financial markets. Non-compliance is classified as partial when the State does not reimburse part of its obligations.
The United States wants to push Russia into default
The US Treasury’s decision not to allow Russia to use its currencies abroad to pay off foreign debts is aimed at pushing Moscow into default. According to one of its spokesmen, Russia must “Choose between emptying your remaining dollar reserves or using new incoming revenue, or default.”
The idea is to further deplete Russia’s resources to prevent it from spending them to finance its war in Ukraine. On March 24, the leaders of the G7 countries and the European Union had already taken new unprecedented measures, and probably not foreseen by Russia, aimed at preventing the Central Bank of Russia from using its international reserves, including gold, to support the ruble or finance the war.
“Among the more than 700 sanctions we have imposed, one of the most powerful actions has been our sanctions against the Central Bank of Russia,” the US Treasury noted last week. Already before, Western sanctions had frozen part of the Russian reserves abroad, some 300,000 million dollars.
Russia will go to court in case of non-compliance
Russia will initiate legal proceedings if it is declared in default by the West, in any case, the finance minister stated in an interview published on Monday, April 11. “We will go to court because we have taken all necessary steps to ensure that investors receive their payments,” declared.
“We will present to the court our invoices confirming our efforts to pay both in foreign currency and in rubles. It will not be an easy process. We will have to prove our position very actively, despite all the difficulties.” he added, without specifying which legal body Russia would turn to.
The Minister denounced the strategy implemented by the United States. “Russia has tried in good faith to pay external creditors by transferring the corresponding amounts in foreign currency to pay our debt. However, the deliberate policy of Western countries is to artificially create a default by all means.”
The minister indicated that Russia’s external debt represented around 4.5 to 4.7 billion rubles (about 52 billion euros at current exchange rates), or 20% of the total public debt.
In the opinion of several analysts, a government default now seems close, even inevitable. As a reminder, defaulting on its foreign debt excludes a country from financial markets and complicates its return for years.