Despite threats to pay its debts in rubles only, the Russian government has in recent days shifted dollar payments as interest on its government bonds.
This is a relatively small series of payments, worth $ 117 million, which is the required return on short-term bonds. “Pitch” and “Standard & Force”, according to which any Russian payment in rubles will be considered as if the state does not meet its debt repayment and it will be defined as bankrupt, for the first time since 1998.
Real fear that Russia will not meet its obligations
Of Russia’s 15 existing bond series in dollars or euros, only six contain a legal paragraph that allows payment, in some cases, in rubles, rather than in paper value. In the last three weeks since Russia started the war against Ukraine, Russian bonds have fallen to the lowest rating. In the “junk” category of the agencies, losing more than 80% of their value, due to a real fear that Russia will not meet its debt repayments.
The fears were fueled by the fact that Russian Finance Minister Anton Silwanov has made it clear in interviews in recent days that the government intends to keep the relatively limited foreign exchange reserves in its hands – which have not been blocked and put out of use by international sanctions – to continue critical imports like drugs and technology. Because it “makes perfect sense” for Russia to pay the yield on the bonds in rubles, according to the government exchange rate set for them, after free trade in the market was stopped the day after the start of the war and less than a month ago. .
Anton Silwanov, Russian Finance Minister / Photo: Associated Press
But for now, it seems that the Russian government has decided to avoid this definition. The answer to the question of how much you will continue to be committed to this will be measured in the next few weeks: According to calculations by the Bloomberg news agency, Russia is expected to pay about half a billion dollars as interest on its national debt over the next three months. In addition, the Russian payment in recent days has been made through clearing systems that are expected to continue functioning only until the end of April, due to international sanctions. It is then unclear how the payments will be made, and the fear of general bankruptcy will increase.
Economists disagree about the effects of a scenario materialization in which Russia will go bankrupt. The chair of the International Monetary Fund, Christina Georgieva, estimated the global exposure of banks and governments to Russian debt at about $ 120 million, and said that this amount does not pose a “systemic risk” to the global economy.
Others estimated that this debt loss could lead to a chain process that would be similar to the risk of bankruptcy faced by southern European countries, such as Greece and Portugal, following the 2008 global credit crunch.
The central bank is trying to convey an optimistic picture
From Russia itself, there are reports of severe disruptions in the supply of goods from abroad and dramatic price increases.
More than half of the “financial fortress” established by the Russian government – gold and dollar holdings, euros, wine and pounds – are in fact frozen and can not be thawed or exchanged for rubles. The huge amount of foreign energy coming out of the EU every day from energy exports (between 500 and 700 million euros a day, depending on prices).
As a result, the Russian government has imposed severe foreign exchange restrictions on those leaving Russia, and banks do not offer free conversion within the country. According to reports from Russia, gold trading is increasing as a commodity that replaces the local currency.
The central bank raised the interest rate overnight to 20%, and in recent days it has even praised the move as one that protects the Russian economy. Russia’s top officials, including President Vladimir Putin, have publicly acknowledged the difficulties the sanctions are causing, but Putin said that “in the long run Russia has all the capacity to deal with the needs.” He also announced an imminent increase in pensions and payments to public employees to deal with the rise in prices, which has reached more than 20% according to various estimates.
After a large part of the foreign media were forced to leave Russia due to the new laws prohibiting what is being done in Ukraine as a war and to report on what is being done objectively – social networks have become a source of information. From the documentation that came up in them, you can see huge queues for sugar in various cities in Russia. Some videos show a struggle of buyers over packages of sugar in supermarkets. A Kremlin spokesman said at the weekend that there was no real shortage – Russia is an exporter of sugar – and that it was an unnecessary attack on goods.
Sugar will soon become the new currency of Russia
The fights for it continues. pic.twitter.com/s6Z08sMSqh
– Anonymous Operations (@AnonOpsSE) March 19, 2022
“There is no reason for the Russians to pounce on the shops and buy quantities of buckwheat, sugar and toilet paper,” said Demetrius Peskov. According to official data from the Russian CBS, quoted on the Moscow Times website, the price of sugar has risen in the country by 15% in the last two weeks, and is accompanied by a general rise in prices.
The Russian central bank has tried to convey an optimistic picture of the following in recent days, estimating that the country will be able to return to the times when it met its own needs.
“The Russian economy is entering a phase of structural transformation on a large scale, accompanied by a temporary – but inevitable – rise in inflation, mainly due to price adjustments in the food and services sector,” he announced. Russia has halted fertilizer exports, significantly reduced exports of wheat and other grains and promoted more trade with India, China and Belarus.
It is hoped that the sanctions will put pressure on Putin
Western countries are hoping that economic sanctions will serve as leverage on Russian President Putin to push for an agreement to end the fighting. “We hope the sanctions will force him to change his plans,” a French government spokesman said at the weekend.
Russians standing in long lines in Saratov today in an attempt to panic-buy sugar.
We are just getting started Russia. More sanctions are coming. pic.twitter.com/YmpRM3xrlk
– Visegrád 24 (@ visegrad24) March 19, 2022
However, at this stage it is not clear what the sanctions will be, and if they are included at all in the negotiations to end the fighting. In addition to the government measures of a growing coalition of countries in the West, the global business sector is rapidly attracting its investments in Russia and eliminating its activities.
British Prime Minister Boris Johnson has said in the last day that he rules out the possibility of a return to “business as usual” with Russia after the current war. “It will be a repetition of the mistake we made in 2014 (after the annexation of Crimea, AA),” he said.