For the first time since 1917, the Bolshevik revolution more than a century ago, Russia is on the brink of defaulting on its foreign debt.
The country had two payment deadlines on bonds sold to foreign investors in the last week. the total interest was approximately $650 million, and Russia was supposed to pay in dollars in accordance with the bond contracts’ terms.
However, Russia made the payments in rubles, citing severe sanctions imposed by the US and its allies. Russia has a 30-day grace period, giving it some breathing room. But, according to S&P Global, circumstances are unlikely to improve, and Russia will default if payments in dollars are not made by early May.
Russia claims it wants to compensate international investors, but the sanctions prevent it from doing so in dollars.
The United States and its allies have imposed a slew of restrictions on Russian financial institutions, preventing many international banks from doing business with the country. They’ve also made it difficult for Russia to access its $600 billion in foreign exchange reserves.
As part of its efforts to isolate Russia from the global financial system, the United States has made it extremely difficult for Russia to make those planned payments in dollars.
Selling bonds is an important means for countries to raise foreign currency for a variety of reasons, including funding projects and increasing foreign currency reserves.
The European Union, on the other hand, is proposing a ban on Russian energy imports, which would further restrict Russia’s capacity to raise funds in foreign currencies.
