Russian debt crisis: Russia is working to avoid a historic sovereign default by tapping into its domestic foreign currency reserves and receiving payments from abroad, according to Bloomberg.
This week, at least one international clearinghouse processed coupon interest rates for $650 million in 2022 and 2042 bond principal. The Russian Ministry of Finance has announced that it will use all funds available through Tuesday evening but plans to make no further deposits after Wednesday midnight when markets close.
Russia is facing a historic default as bondholders wait for payments in dollars, and the country is racing to avert this outcome. On Friday, the Russian Finance Ministry reversed course and announced that it will now pay off its dollar debts in rubles instead of dollars.
This decision is a massive relief for investors, who were concerned about losing out on their investments due to political turmoil in Russia following recent elections. Some believe that this move may be an attempt by the Russian government to rebuild trust after last month’s grace period expired without any payments being made.
Analysts like Timothy Ash are surprised by how far Moscow has gone towards fulfilling its obligations despite previous tough messaging.
“We’re keeping all options open,” said OFAC‘s Director, Ash. He continued by saying that the agency has not yet decided whether or not to extend their general license on May 27th and can act anytime before then in order stop Western institutions from processing bond repayments.
“The United States can force Russia into default at any time,” he added. “OFAC is still in the driving seat.”
The attempt to pay off debts came after Washington refused a waiver for Russian payments on foreign bondholders earlier this year, despite having granted such permission just last month–and it’s not alone: many other countries are also struggling with how best handle their standoff against America due largely because both sides want something from each others’ economies but have no interest whatsoever working together when it comes to resolving the crisis.
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Russia’s foreign currency reserves are being depleted at an alarming rate.
It is estimated that 50% of Russia’s vast financial wealth will be lost due to these sanctions. S&P Global Ratings has downgraded their credit rating from “selective default” status after the country tried paying off some debts in rubles instead of dollars on April 4th
Before this event they had been suggested by Moody’s company may also consider a possible move towards default unless remedied.
This situation is being caused by a perfect storm of low oil prices, sanctions, and a weak ruble. Many experts are concerned about the severe consequences that could come from a Russian sovereign default, including a rippling effect throughout the global economy.
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