Russia Defaults On Foreign Debt For The First Time Since 1918: What To Know

Recently, Russia defaulted on its foreign debt for the first time since 1918. Yes, you heard it correctly! It has happened for the first time in a century. Let’s check out more about this in detail.

Russia defaulted on foreign debt for the first time in 104 years

Russia has defaulted on its foreign debt after so many years. It has been there for more than a century. As we all know, various Western countries have designed various sanctions to punish Moscow for invading their neighboring country Ukraine. It was restricting its ability to pay overseas creditors.

Some sources say that the country has the money. But they are not able to pay the amount to the creditors because sanctions have removed Russia from the international payment systems. On Sunday, June 26, the deadline for an overdue $100 million interest payment expired.

Vladimir Putin, the President of Russia, recently proposed the idea of paying the creditors in rubles. Later, that amount could be converted to dollars. He made this plan after the U.S. Treasury Department closed a loophole that had permitted the Kremlin to make debt payments through American banks to American bondholders.

Later on, Vladimir Dzhabarov, the Russian senator, rejected the reports of the default on the Telegram. He called the West hypocritical and accused their banks of stealing a hefty amount of Russian money. The political experts shared that the debt default will add to Moscow’s and isolate the country from the global economy and tarnish its reputation among the financial investors.

It is so bad that it would take many years to repair. Even investors are worried that Russia continues to put its foreign policy interests ahead of its creditors. The reason behind Russia’s default on its foreign debt is that America imposed sanctions and others prevented it from accessing its currency reserves held abroad.

As of now, Russia made $100 billion from fuel exports and on February 18 their central bank had over $640 billion in foreign exchange reserves in the Western central banks of Germany, London, and New York.

And last week, the Kremlin tried to shift to servicing its outstanding debt in rubles. Then accused the West of forcing it into an artificial default. Trusted sources say that none of those bonds had any terms that would permit the debt to be paid in rubles. The overdue $100 million interest was paid on May 27. However, the grace period expired on June 26, and that triggered the default.

Russia’s debt default might affect global markets

Last month, Treasury Secretary Janet L. Yellen downplayed the repercussions of the default. Furthermore, she stated that Russia is already cut off from the global markets due to these sanctions.

Besides, many companies and investors have left Russian and exited their investments after the Russian-Ukraine war started in February. Experts say it is a big black mark against the country, which would take years to recover.

Conclusion

Sometimes investors would negotiate a payment plan with a defaulting country. But there are various sanctions on Russia, and investors are barred from dealing with them, so it will take time to settle things down.

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