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Russia could default within a few days

Russia’s finance minister, Anton Siluanov, said western sanctions imposed after the invasion of Ukraine have frozen half of the country’s foreign reserves (about $ 315 billion). He said until the sanctions were lifted.

Credit rating agencies may consider Russia the default if Moscow misses payments issued in dollars or euros in other currencies such as the ruble or the Chinese yuan or repays debt. The default could drive the few remaining foreign investors out of Russia and further isolate them. The country’s collapsing economy.

According to JPMorgan Chase, a default could occur on Wednesday when Moscow needs to hand over $ 117 million in interest payments on dollar-denominated government bonds. Russia has issued bonds that can be repaid in multiple currencies since 2018, but these payments are made in US dollars.

Russia’s default is “unlikely” on Sunday, said Cristalina Georgieva, managing director of the International Monetary Fund.

“Russia has the money to repay its debt, but it has no access to it,” she said in an interview with CBS’s Face the Nation.

Last week, Fitch Ratings downgraded Russia’s debt, dampening Moscow’s willingness and ability to repay debt, and said default was “imminent.”

Capital Economics analysts said the default was already reflected in the price of Russian dollar bonds.

There is a 30-day grace period for interest payments to be paid on Wednesday, but if Moscow reveals that Moscow is not willing to pay, credit rating agencies will default to Russia before the end of that period. Can be declared.

Russia finally defaulted on its domestic debt when it fell into a financial crisis due to the fall in commodity prices in 1998. A recent foreign currency default occurred in 1918 when Bolshevik leader Vladimir Il’nin rejected bonds issued by the Tsarist government.

What will happen next

The Russian government’s borrowing is relatively small, and JP Morgan estimates that it had about $ 40 billion in foreign currency debt as of the end of last year, about half of which was held by foreign investors.

However, it is difficult to measure the potential results of the default. The 2008 global financial crisis and coronavirus pandemic showed how negative shocks spread to the modern interconnected global financial system and economy as a whole.

According to the Bank for International Settlements, the Bank for International Settlements owes more than $ 121 billion in debt from Russian entities. European banks, with the largest numbers in France, Italy and Austria, have $ 14.7 billion in debt, with a total of over $ 84 billion in debt.

Georgieva said on Sunday that the financial crisis is unlikely to progress “for now” and that Western bank exposures are “systematically irrelevant.”

Even if Moscow stops paying all sovereign debt to foreign investors, the default of about $ 60 billion, including ruble debt held abroad, is in the same stadium as Argentina in 2020.

However, analysts at Capital Economics have warned that one major financial institution may be particularly exposed to Russian debt, which could lead to broader financial transmission.

Russia’s wealthiest businessman Vladimir Potanin last week called on Moscow to relax foreign currency restrictions and pay interest on foreign bonds and loans. About $ 480 billion.

“In Russia, the main costs are either locked out of the global capital markets, or borrowing costs are high, at least for the long term, but sanctions do so,” said an analyst at Capital Economics. Said.

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