Russia defaults on first major foreign debt since 1918

Russia has gone into default, the first time since 1918 – or since the Bolshevik Revolution – that it has defaulted on its foreign currency debt.

The default was triggered after the grace period of approximately $100 million in unpaid bonds expired, with payments blocked as a result of extensive sanctions against the Kremlin following the invasion of Ukraine. The sweeping sanctions effectively cut the country off from the global financial system and made its assets untouchable for many investors.

The fact actually matters more for its symbolic value, at least for now. Russia is, in fact, a country already marginalized economically, financially and politically by much of the West. In addition, default would not be due to a lack of money by the debtor, but due to the closing of transfer channels by creditors.

A US official said on Monday that the default shows how much sanctions are impacting Russia’s economy. The official was speaking to reporters after the White House released a document detailing potential actions by the G7 to support Ukraine and further reduce Moscow’s oil revenues.

“This morning’s news about the discovery of Russia’s default, for the first time in more than a century, situates the strength that the US, along with allies and partners, has taken, as well as the impact on the Russian economy,” the US official added. US in an interview amid a G7 summit in Germany.

Earlier, some bondholders said they had not received accrued interest on Monday after a key payment deadline expired a day earlier.

Moscow had already addressed the probability of default in the first few months of this year, but had managed the situation by changing payment methods.

Last May, the US Treasury, however, did not renew the license that allowed Russia to pay US investors who have acquired Russian assets. From that moment, it became impossible for the Russians to pay the debt in dollars or in the currencies mentioned in the prospectuses of the issues.

The last time Russia defaulted on its foreign creditors was more than a century ago, when the Bolsheviks, under Vladimir Lenin, repudiated the tsarist-era debt burden in 1918.

Russia has struggled to meet payments on $40 billion of outstanding bonds since its February 24 invasion of Ukraine as sweeping sanctions cut the country off the global financial system and made its assets untouchable for many investors.

The Kremlin has repeatedly said there is no reason for Russia to default but cannot send money to bondholders because of sanctions, accusing the West of trying to trick it into artificial default.

Some Taiwanese bondholders had not received payments on Monday, sources told Reuters.

With no exact deadline specified in the prospectus, lawyers say Russia may have until the end of the next business day to pay bondholders.

(With Ansa and Reuters)

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