The war-torn country that invaded Ukraine on February 24 claims that it has sufficient funds and wants to pay because it is desperate to avoid default for the first time in 26 years. However, Russia has realized that it is impossible to get payments to international creditors due to the devastating sanctions it has been struck, and default is almost imminent. The damaging punishment imposed by the West has hampered Russia’s access to an international banking network that would handle payments from the state to investors around the world.
So far, the Russian government has fulfilled its commitment and has been able to make all payments on time.
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However, Russia’s huge $ 40 billion (£ 32.6 billion) debt is denominated in dollars or euros, and about half is still held abroad as more damaging.
The latest £ 81.5 million interest facility is expected to be paid by May 27, and Russia claimed that the payment would be sent to Euroclear, a bank that distributes to investors.
However, Bloomberg News reports that the payment has been stuck there since then and creditors have not received it.
Jay Auslander, a US lawyer who has worked on many government debt cases, warns:
“If this money does not arrive within 30 days of the due date, that is, on Sunday night, it is widely considered the default.”
Euroclear was in a harsh tone about whether payments were blocked, but said it was in compliance with all sanctions.
The US Treasury has chosen not to renew the special tax exemption on sanctions rules that allow investors to receive interest payments from Russia that expired on May 25.
“The second is that foreign investors are explicitly prohibited from receiving payments from us.”
Siluanov argued that it would not be a true default because Russia wants to pay and has the money to make it successful.
He caused a bitter explosion, saying, “Anyone who knows understands that this is not the default. The whole situation looks like a farce.”
If Russia does not make this latest payment, creditors can go to court to get their money.
Defaulted countries are usually unable to borrow any more money, and Russia is subject to sanctions, effectively banning this move in the western market.
However, Russia is still reported to make about $ 1 billion a day from fossil fuel exports.