A Russian flaw would be the first since Bolshevik leader Lenin refused to recognize the debt inherited from the Tsarist regime overthrown during the 1917 revolution.
Vladimir Putin in Moscow, Russia, May 25, 2022. (SPUTNIK / SERGEI GUNEYEV)
Economic pressure is mounting on Russia, which failed to pay interest on its debt on Wednesday (June 1st). An incident that raises the hypothesis of a default in Moscow in the fourth month of the war in Ukraine.
The announcement that Russia is officially unable to repay its creditors seems inexorably close in the eyes of most analysts,
Moscow is finding it increasingly difficult to meet its debts as Western sanctions tighten.
Since the three major international financial rating agencies no longer rate Russia under Western sanctions, they have refrained from declaring whether or not to default on the country, as is their usual role. It is therefore up to an organization bringing together major international banks (Credit Derivatives Determinations Committees) to assess whether or not Russia is missing out on payments to its creditors.
Unpaid interest on arrears
On Wednesday, for the first time, this commission of creditors stated that
the country had failed to pay $ 1.9 million in interest on its debt
, a small amount in view of the financial strength of a state like Russia. Holders of Russian bonds reported that they did not receive such late interest for the repayment of a maturity on these bonds, according to a decision posted on the commission’s website.
The commission may or may not decide to activate default insurance, called Credit Default Swap (CDS), an activation that may formalize a default. But she gave no indication on Wednesday about it, and is due to meet again on June 6 to discuss Russia’s case.
Specifically, Russia “paid the amounts it had to pay at the agreed deadline, but
intentionally or unintentionally forgotten to add late interest
Eric Dor, director of economics at IESEG School of Management, said: “, a period of one month traditionally granted to a creditor to pay off a debt, to pay the principal of his debt, and part of the interest.
An inevitable flaw
Although it seems inevitable in the eyes of most experts
, the announcement of a default on Russia’s external debt is still pending. This is the first time since Bolshevik leader Lenin refused to recognize the debt inherited from the Tsarist regime overthrown during the 1917 revolution.
Debt settlement is made even more difficult by Western sanctions imposed since the Russian invasion of Ukraine on Moscow’s ability to borrow and repay what it owes.
The United States first made it impossible for Russia to pay off its debt with dollars held in US banks. Then, last week, Washington banned Moscow from paying its debts in dollars – while Russia still has 12 deadlines to pay by the end of the year.