Russia may be defaulting on its foreign debt after trying to make certain bond payments in rubles, which shows the devastating economic effects of the nation’s exclusion from the Western financial system after the invasion of Ukraine.
Moody’s noted on Thursday that Russia made payments on two bonds in rubles, instead of US dollars, which went against the terms of the bond contracts.
“Bond contracts have no provision for repayment in any currency other than the dollar,” the rating agency said in a statement.
Payments indicate “a change in payment terms in relation to original bond contracts and therefore may be considered a breach of Moody’s definition if it is not cured by May 4, which is the end of the period. of grace, “Moody’s said in a statement.
The bonds in question expire in 2022 and 2042. Moody’s noted that while some bonds issued after 2018 allow payments in rubles under certain conditions, those issued earlier, including those maturing in 2022 and 2042, do not.
Last week, S&P Global Ratings downgraded Russia’s rating, saying the country was in “selective default” after making some payments in rubles. S&P also said it did not expect Russia to convert the ruble into dollars in the 30-day grace period allowed.
Selective default occurs when a borrower pays some debts but not others.
Russia has not defaulted on its foreign debt since the Bolshevik revolution of 1917, when the Soviet Union emerged and repudiated the debts of the previous Tsarist government. In the late 1990s, after the dissolution of the Soviet Union, Russia was able to continue paying its foreign debts with the help of international aid. However, he did not pay his domestic debt.
Tightening sanctions on the Russian financial system they have made it difficult for the government to access the hundreds of billions it has in foreign reserves. After evidence of alleged Russian war crimes broke out in Ukraine, the murder of civilians in the city of Bucha during the Russian military occupation: the US banned Russia from using the foreign exchange reserves of American banks to pay off its debts.
Russia’s finance ministry said last week that it had tried to make a $ 649 million payment for two bonds to a US bank, but that the payment was not accepted because of the sanctions.
Russia has indicated that it is still willing to pay its debts, but the Kremlin has also warned that it would do so in rubles if its foreign currency accounts remain frozen.
Finance Minister Anton Siluanov recently warned that Russia would take legal action if it was forced to default on its sovereign debt.
The Associated Press contributed to the information.
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