Russia scrambles to avoid defaults: report

Russia reportedly made two overdue debt payments in US dollars on Friday — a move that came as the Kremlin struggled to avoid its first default on foreign obligations since World War I.

Russia’s Treasury Ministry said it made a $564.8 million payment on a 2022 dollar-denominated bond due to mature this year and a $84.4 million payment dollars for another bond due in 2042.

The decision to make the payments in dollars marked a turning point for the Kremlin, whose officials had previously indicated they would settle the debt in Russian rubles.

The ministry said it funneled the money for the bond payments to Citibank’s London branch — though it’s not clear if the funds will be released as the US and other Western nations impose crippling economic sanctions on Russia for invading Ukraine, reported Reuters.

Credit agency Moody’s had previously warned that Russia had breached the terms of the two Eurobond contracts by attempting to pay in rubles. The installments were due on April 4th.

Wladimir Putin
US sanctions aim to increase pressure on Vladimir Putin to end the war.
SPUTNIK/AFP via Getty Images

In a statement earlier this month, Moody’s noted that unless Russia rectifies the situation within a 30-day grace period, the use of rubles “represents a change in payment terms compared to the original bond agreements and may therefore be considered a default.” , which ends on May 4th .

“The bond agreements do not provide for repayment in any currency other than dollars,” the credit agency added.

According to Reuters, Russia has not defaulted on its external debt since the 1917 Bolshevik Revolution. The country’s last default was in 1998.

VTB bank branch
Western sanctions disconnected many Russian banks from the international SWIFT payment system.

Since the beginning of the Ukraine war at the end of February, Russia has narrowly avoided insolvency several times.

US-led sanctions against the Kremlin included banning Russian banks from the international SWIFT payment system and other weakening measures intended to increase pressure on Russian President Vladimir Putin and his allies.

Russia has responded with its own economic penalties – including demands that so-called “unfriendly” nations in Europe must pay for Russian energy in rubles.

In March, Russian officials said about $300 billion of its $640 billion in gold and foreign exchange reserves were frozen and inaccessible.

The Biden administration has previously blocked Russia from making more than $600 million in government debt payments using reserves in American banks. Russia scrambles to avoid defaults: report


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