Russia facing default - Kremlin spokesman counters: "Not our problem"

Created: 2022-06-27Updated: 2022-06-27 13:52

By: Thomas Schmidtutz

Kremlin spokesman Dmitry Peskov takes part in a video conference at the Moscow Kremlin.

(Archive) © Alexei Nikolsky/dpa

Russia is heading for its first default since 1918.

The Russian finance minister is trying to calm the markets and senses a western conspiracy.

Update, June 27, 12:15 p.m.

– Kremlin spokesman Dimitri Peskov has rejected Western speculation about an imminent default by Russia.

The allegations are "unlawful," the Russian news site Gazeta Peskov quoted the Putin spokesman on Twitter.

According to this, the Russian Federation had already made the relevant payments “in foreign currency” last May.

"The fact that these did not reach the recipients is not our problem," explained Peskov, referring to the comprehensive sanctions against Russian banks. 

Russia on the brink of default - Russian finance minister rumbles: "It's a farce"

First report from June 27, 2022

- Russia is about to default on foreign debt for the first time in over 100 years.

According to a report by the Reuters news agency, several investors in Taiwan had not received payments that were actually due by Sunday evening.

However, there is disagreement among lawyers as to whether the deadline for the Kremlin's settlement officially ended on Sunday evening or only at the end of the following working day, i.e. on Monday (June 27).

However, in view of the harsh financial sanctions imposed by the West, observers do not expect the situation to change by Monday evening and the Kremlin to be able to serve its creditors after all.

Should this last deadline also expire, it would be the first Russian default (default) on foreign debt since 1918.

Russian bonds: grace period expires

In this specific case, it is about two foreign currency bonds with a volume of 29 million euros and a government bond for 71 million dollars.

Originally, Russia should have made the corresponding interest payments for both bonds on May 27, but missed the deadline.

This started a 30-day grace period that is now ending.

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Imminent default: Russian finance minister rumbles

Moscow has recently repeatedly rejected the accusation of insufficient solvency.

The threat of non-payment is a "farce," the Russian Finance Minister Anton Siluanov rumbled a few days ago.

Billions of dollars from energy exports poured into the treasury every week.

But because of the sanctions in force, the bonds that are due cannot be serviced.

It is obvious that the West is deliberately trying to drive Russia into insolvency, the Kremlin said several times recently.

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Because of the attack on Ukraine, the West had cut off the largest Russian banks from the global financial system and frozen the Russian central bank's multi-billion dollar currency reserves.

Impending payment default: manageable in the short term

In the short term, the consequences of a possible Russian default are likely to remain limited, analysts at Dekabank said.

After all, Russia is currently hardly indebted.

The ratio of total debt to economic output is currently around twenty percent.

In addition, only a small part of the national debt is in the hands of foreign creditors.

In the medium term, however, the risks of default can hardly be foreseen at present.

First, at least 25 percent of the affected creditors would have to determine a formal payment default.

It is currently questionable whether this would result in a so-called cross-default.

In this case, not only the bonds affected by the current default, but all of Russia's external debt would be considered non-performing.

However, it remains to be seen whether such a step would stand up in international courts.