For the first time since 1918, Russia has defaulted on a foreign debt payment.
Moscow has reportedly failed to pay $100 million U.S. in interest payments on two bonds that
expired on June 26. The last time Russia missed a foreign debt payment was during the
Bolshevik revolution.
Moody's credit rating agency said that the missed deadline “constitutes a default” and it
predicted that Russia would default on more payments going forward given an announcement
by the Kremlin last week that it would service its foreign debt in rubles rather than the currencies
the bonds were issued in.
Russia denied it was in default, saying the latest payment had been made in dollars and euros
but that the money was stuck with Euroclear, a clearing house based in Belgium. However,
Euroclear cannot settle any securities with countries that are subject to sanctions.
The historic default had been widely anticipated after half of Russia's foreign reserves were
frozen following its invasion of Ukraine earlier this year.
Russia had managed to pay back creditors with U.S. dollars in April of this year after teetering
on the brink of default. The country's finance ministry said in April that it made a $565 million
U.S. payment that was due.
Since 2014, when Russia was sanctioned over its annexation of Crimea, the Kremlin had built
up $640 billion U.S. in foreign reserves. However, about half of those funds are now frozen
under the new sanctions imposed after Russia’s invasion of Ukraine.
It's not clear what effect the debt default will have on Russia's economy as the country is
already unable to borrow money abroad and its existing bonds have collapsed in value to
pennies on the U.S. dollar.
