Sanctions: Russia, threatened with default, faces a first payment deadline

Posted 16 March, 2022

Russia faces a first bond payment deadline on Wednesday that threatens it with default as its overseas assets are frozen by Western sanctions.

On Wednesday, Moscow must repay $117 million on two Eurobonds, the first in a series of several maturities in March-April.

But today, in retaliation for the Russian military intervention in Ukraine, the portion of Russian reserves held abroad, around $300 billion, is frozen under Western sanctions.

On Monday, the Ministry of Finance announced that it had sent "a payment order to the correspondent bank concerning the payment (...) of a total amount of 117.2 million dollars".

But Finance Minister Anton Silouanov had threatened earlier Monday to repay Russian debts in rubles.

"Statements that Russia cannot meet its obligations regarding its public debt do not correspond to reality," he insisted, accusing the West of wanting to "cause an artificial default".

If Russia pays in rubles, as it has threatened to do, a 30-day period will begin after which Russia will be declared in default on its foreign debt, a first since 1918, when Lenin reneged on the obligations of the country.

But a certain vagueness remains around this first deadline. JPMorgan analysts believe that these payments should be possible.

The US Treasury specifies that the payment of interest is possible until May 25, 2022, for US persons, on bonds issued before March 1, 2022, by the Central Bank of Russia, a Russian sovereign wealth fund, or the Ministry of Finance.

After this date, they will need the authorization to continue receiving these payments.

Western sanctions have crippled part of the Russian banking and financial system and caused a collapse of the rouble. A payment default cuts a state off from the financial markets and jeopardizes its return for years.

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