Central Bank of Russia (AFP / Natalia KOLESNIKOVA) in Moscow on February 28, 2022
Russia on Monday accused the government of renewing memories of the disgraceful default in 1998 and seeking to freeze Moscow’s assets abroad and stimulate artificial debt through its sanctions.
The Finance Ministry stressed that “reports that Russia will not be able to fulfill its public debt obligations are not in line with reality.”
As for Russia, it is not just about its respectability and future access to the financial markets. For two decades and especially after the 2014 crisis, Moscow really tried to create an impeccable financial health, thanks to a very low debt ratio and more than $ 600 billion in reserves for oil rents.
But today, in retaliation for Russian military intervention in Ukraine, part of the foreign reserves, worth about $ 300 billion, became Achilles’ heel of the Russian economic stronghold: they are frozen in the framework of Western sanctions, challenging Russia. March-April to meet the deadline for repayment of many loans in foreign currencies.
– “unique situation” –
If the Eurobonds issued since 2018 can be redeemed in rubles, this does not apply to the first maturity coming on Wednesday with the repayment of $ 117 million.
“This is a unique situation in which the imposition of sanctions will determine Russia’s default in 2022,” Elena Ripakova, deputy chief economist at the International Monetary Fund (IIF), said Monday.
“We will fail unless the US Treasury allows Russia to release $ 300 billion in frozen assets to pay less than $ 20 billion in foreign shares of Russian eurobonds,” he notes.
Map showing the next repayment period for Russian bonds (AFP /)
Western sanctions paralyzed the Russian banking and financial sector and caused the ruble to fall. The default of payments automatically cuts off the position of the financial markets and affects its returns for many years.
– 1998 snap –
After the collapse of the Soviet Union, Russia alone borrowed $ 70 billion from the vanished empire. The weight taken over a quarter of a century to get rid of.
The painful and turbulent 1990s culminated in the repayment of a disgraceful debt in 1998. The Russian economy, among other things, was weakened by the financial crisis in Asia and the great cost of the First War in Chechnya.
With the issuance of a new bond in 2011, it took twelve years for Russia to return to borrowing in international markets.
In the early 2000s, the country benefited from the arrival of petrodollars due to the rise in oil and gas prices, which allowed the reserves to build up and make a firm transition to Soviet debt by the last repayment in 2017.
Russia has made it a matter of honor to rebuild its reputation as an undeniable borrower, and efforts will be thwarted.
“Russia has the money to pay off its debt, but does not have access to it. I am very concerned about the consequences beyond Ukraine and Russia,” IMF chief Kristalina Georgieva told CBS on Sunday.
She underscores that if she excludes that this is causing a global financial crisis, the increase in food and energy prices caused by this crisis could lead to famine, especially in Africa. In addition to the economic impact on the Russian and Ukrainian peoples, part of it is at risk of sinking into poverty and neighboring countries.
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