Russia on the verge of insolvency: tried to pay creditors in rubles instead of dollars

For the first time in its history since the Bolshevik Revolution, Russia is on track to define itself as an insolvent state. This is due to its attempts to pay the yield on government bonds in rubles, instead of dollars. This was announced tonight by the rating agency “Standard & Force” (S&P), Which monitors payments.

According to the agency, the Russian government has offered to pay the interest on a bond that expired on April 4 in rubles, instead of dollars as required by the purchase contract, and is therefore on its way to being in a state of “partial default”.

Russia now has a grace period of about 30 days (counted from April 4, the due date) to make the payment in dollars. But in fact, the Russian central bank is very limited in its ability to do so, as a significant portion of its foreign exchange reserves – held by banks outside the country – have become unusable. It is estimated that more than $ 300 billion of the reserves are inaccessible to Moscow. Russia will have to transfer funds From its foreign currency accounts in the country itself, or find another payment solution within 30 days, or be defined as bankrupt, according to the rating agency. This definition may also be partial, as Russia may meet interest payments on another portion of its bonds, which allows payment in rubles.

Of Russia’s 15 existing bond series in dollars or euros, only six contain a legal clause that allows payment, in some cases, in rubles, rather than in the value of the paper. Its dollars are in dollars from its foreign exchange reserves held in U.S. financial institutions. “They have to choose between taking out the reserves they have at home, or going bankrupt,” a U.S. source told CNBC.

Russia plans to sue US: “There is no basis for bankruptcy”

Russia has previously said it has the “full right” to pay in rubles due to international sanctions against it, and that even if it is defined by rating agencies as a country that does not pay interest on its debts, and as a formal bankrupt, it is only a “technical bankruptcy”. In recent days, the Russian government has said it intends to sue the United States and other countries over the issue. Of the Russian state, “Kremlin spokesman Dmitry Peskov said,” it’s not even close. ”

About three weeks ago, Russia managed to pay $ 117 million in interest on two series of dollar-denominated government bonds, unlike some of the other bonds that allow payment in rubles. This was done before the US tightened its austerity measures on the use of Russian foreign exchange reserves in American banks.

Formally, Russia as a country has not gone bankrupt since the Bolshevik Revolution of 1917. The US decision to deny payment options, a former bond analyst told Reuters, “accelerates the pace at which Russia has no ability, or willingness, to pay.” $ 320 billion from this field alone this year.

By Editor

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