Russia defaults on foreign debt for first time since World War I
Russia defaulted on its foreign debt obligations for the first time since 1918 on Monday following months of speculation that crippling Western sanctions in response to the Ukraine war would force the Kremlin into nonpayment.
The historic default occurred after Russia failed to make approximately $100 million in interest payments on two dollar- and euro-denominated international bonds within a 30-day grace period. The payments were originally due May 27.
The White House and other Western officials have anticipated a Russian default for months after sanctions effectively severed the Kremlin’s access to the global economy. The US and other nations imposed sweeping penalties in response to the brutal invasion of Ukraine.
“This morning’s news around the finding of Russia’s default, for the first time in more than a century, situates just how strong the actions are that the US, along with allies and partners have taken, as well as how dramatic the impact has been on Russia’s economy,” a US official told Reuters at the G7 summit.
The likelihood of a Russian debt default increased in late May, when the Treasury Department allowed a key payment waiver to expire — ensuring that US banks and individuals could no longer accept bond payments from the Russian government. Russia owes approximately $40 billion in internationally-held sovereign debt.
The default is largely symbolic for a Russian economy that is already weathering double-digit inflation, major GDP losses and a plunge in the value of its ruble since the invasion began.
White House Press Secretary Karine Jean-Pierre said at the time that a default was imminent and that nonpayment would mark “an enduring sign of their status as a pariah in the global financial system.”
The Kremlin, which has continued to rake in huge profits from its oil and gas shipments during the Ukraine war, has decried the default as “artificial situation” – asserting that it has the money to cover its debts and Western officials blocked payments from reaching bondholders.
“Statements of a default are absolutely unjustified,” Kremlin spokesperson Dmitry Peskov said Monday.
“The fact that Euroclear withheld this money and did not bring it to the recipients is not our problem,” Peskov said, according to Reuters. “There are absolutely no grounds to call such situation a default.”
Despite its historic nature, the Russian default is unlikely to rattle European or global markets, according to Giles Coghlan, an analyst at broker HYCM.
“As investors have been pricing in the default for months, at this stage the markets are taking a ‘wait and see’ approach – if the conflict in Ukraine fades over the medium-term, then payments are likely resume at some point,” Coghlan said. “At least for now, this will not affect European stocks or the EURO due to the nature of the default.”
Russia hadn’t defaulted on its foreign debt since the Bolshevik revolution occurred during World War I. The Kremlin’s last default of any type occurred in 1998.
Experts told The Post in March that a Russian default would damage their economy and hurt investors, but was unlikely to cause a global financial crisis.