27 Jun 22
https://www.bloomberg.com/news/articles/2022-06-26/russia-defaults-on-foreign-debt-for-first-time-since-1918
Russia Defaults on Foreign Debt for First Time Since 1918
Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors.
It’s a grim marker in the country’s rapid transformation into an economic, financial and political outcast. The nation’s eurobonds have traded at distressed levels since the start of March, the central bank’s foreign reserves remain frozen, and the biggest banks are severed from the global financial system.
But given the damage already done to the economy and markets, the default is also mostly symbolic for now, and matters little to Russians dealing with double-digit inflation and the worst economic contraction in years.
27 Jun 22
@vivify saidDid they? Their Finance Minister is claiming the funds were sent but that Western financial agents are withholding them from the bond holders:
https://www.bloomberg.com/news/articles/2022-06-26/russia-defaults-on-foreign-debt-for-first-time-since-1918
Russia Defaults on Foreign Debt for First Time Since 1918
Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors. ...[text shortened]... o Russians dealing with double-digit inflation and the worst economic contraction in years.
"On Monday, the finance ministry said that 'actions of foreign financial intermediaries are beyond of the Russian finance ministry's control,' asking foreign bondholders to speak directly to those withholding the payments.
"The non-receipt of money by investors did not occur because of lack of payment but due to the third party actions and which is not directly spelled out as a default situation by issue documentation," the ministry added."
https://www.reuters.com/markets/commodities/kremlin-rejects-russian-default-says-bond-payments-executed-2022-06-27/
27 Jun 22
1 edit
Seems like Russia’s refusing to do business with anyone in anything other than roubles and the agreement was that they would pay in euros or dollars.
Imagine if the Confederacy, interwar Germany or Zimbabwe insisted on only using their own currency. Who gets to decide the appropriate exchange rate?
27 Jun 22
1 edit
@athousandyoung saidThat's not true, at least according to them: "The Kremlin dismissed the reports, saying the payment had been made in foreign currency in May." https://www.themoscowtimes.com/2022/06/27/russia-in-century-first-default-on-foreign-debt-bloomberg-a78114
Seems like Russia’s refusing to do business with anyone in anything other than roubles and the agreement was that they would pay in euros or dollars.
Imagine if the Confederacy, interwar Germany or Zimbabwe insisted on only using their own currency. Who gets to decide the appropriate exchange rate?
They did: "Russia’s Finance Ministry has said it switched to a new payment system Wednesday, after the U.S. ended an exemption allowing Moscow to make the payments in dollars held in Russia.
Under the new system, the ministry transfers the ruble equivalent of the debt coupon's value to the Moscow-based National Settlement Depository that reimburses creditors in rubles at the rate of the Central Bank."
How can they pay in Euros or dollars when the financial intermediaries won't do business with them?
Your hypothetical is inapposite; the value of the ruble is still being set in international markets. https://www.cbsnews.com/news/russia-ukraine-ruble-currency-russian-economy-2022/
27 Jun 22
@no1marauder saidThat is one of the natural and expected consequences of economic suppression strategies like sanctions. If Russia has the balls they will just default and accept the consequences (while denying it ever happened in public). We’d find out just how much autarky Russia really has.
I admit I'm not an expert in international finance, but if Russia is trying to pay the bonds and being prevented by Western sanctions are they really "defaulting"?
27 Jun 22
2 edits
As long as the ruble is solid then renegotiation is more appropriate than default. I was assuming the collapse of the ruble above. Some stupid clause saying you have to pay in a particular currency alone isn’t worth forcing default. But trying to pass off catastrophically inflating currency for its old value is worth forcing default.
27 Jun 22
4 edits
@no1marauder saidIn my second post I brought this point up using the same Reuters article you posted and commented that this seemed unfair. But then I didn't want certain posters saying "ISN'T IT UNFAIR THEY'RE INVADING UKRAINE???" and dragging this thread off course. So I quickly deleted it.
Did they? Their Finance Minister is claiming the funds were sent but that Western financial agents are withholding them from the bond holders:
"On Monday, the finance ministry said that 'actions of foreign financial intermediaries are beyond of the Russian finance ministry's control,' asking foreign bondholders to speak directly to those withholding the payments.
"T ...[text shortened]... ters.com/markets/commodities/kremlin-rejects-russian-default-says-bond-payments-executed-2022-06-27/
It seems the goal is to financially ruin the USSR since they're to big for typical sanctions to work; this would be probably affect Russia's credit rating even though it would be through artificial means. I doubt this will have much affect.
@vivify saidI wonder if Western nations will make the bondholders whole? Right now these investors are getting zero return and if they want to sell they'll get 20 cents on the dollar. They are mostly rich guys from the West but there are pension funds and other institutions with significant Russian bonds.
In my second post I brought this point up using the same Reuters article you posted and commented that this seemed unfair. But then I didn't want certain posters saying "ISN'T IT UNFAIR THEY'RE INVADING UKRAINE???" and dragging this thread off course. So I quickly deleted it.
It seems the goal is to financially ruin the USSR since they're to big for typical sanctions to ...[text shortened]... credit rating even though it would be through artificial means. I doubt this will have much affect.
Be interesting to see what happens.