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Russia Defaults On Foreign Debt For The First Time In 104 Years

  • Russia has just defaulted on foreign debt obligations for the first time in over a century.
  • Putin’s invasion of Ukraine has sparked retaliation in the form of economic sanctions, weighing on Russia’s ability to pay foreign investors. 
  • The efficacy of western sanctions hitting the Russian economy has been watered down as Europe continues to buy Russian energy.
Russia Default

Russia has defaulted on its foreign debt obligations for the first time since the Bolshevik revolution in 1918.

Sanctions launched by an alliance of western nations in response to president Vladimir Putin’s invasion of Ukraine have hobbled the Kremlin’s access to its assets, meaning it has been unable to pay foreign investors.

Moscow missed a grace period deadline today on a $100m interest payment that was originally due on 27 May, tipping the country into default for the first time in over a century.

A US official said at today’s G7 summit that the default shows “just how strong the actions are that the U.S, along with allies and partners have taken, as well as how dramatic the impact has been on Russia’s economy”.

Russia insisted it has the means to fulfill its foreign debt obligations and blamed sanctions for leaving creditors out of pocket.

The Bolsheviks stopped paying foreign investors in the early 1900s amid the Russian civil war to keep assets in the country to strengthen the economy.

Related: New EV Battery Boasts 1,000km Range

America’s Treasury department blocked Russia from making payments last May, effectively sealing its fate of falling into default.

Earlier this year, the world’s top rating agencies downgraded Russian debt to among the lowest wrongs on their debt safety ladder.

The efficacy of western sanctions hitting the Russian economy has been watered down by European countries continuing to send money to the country in exchange for Russian energy.

Persistently high demand for Russian gas has lifted the rouble after it initially plunged against the world’s leading currencies following Moscow’s invasion.

However, US president Joe Biden, UK prime minister Boris Johnson and other leaders of G7 countries over the weekend said they are pursuing a cap on Russian energy prices to curb revenues flowing into Moscow.

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  • Mamdouh Salameh on June 27 2022 said:
    There is a world of difference between a country defaulting on foreign debt and one being prevented from paying by sanctions.

    This is the case of Russia. Russia prides itself as never having defaulted once on its foreign aid in 104 years. It has the funds and plenty of them, the willingness and the intention to settle its foreign debts but is being thwarted by Western sanctions.

    In such a situation, a court of law will judge that the culprit is Western countries imposing the sanctions and not Russia.

    In fact, I go as far as to say that Russia should refrain from paying any outstanding debts until Western sanctions are lifted and assets worth more than $300 bn belonging to Russia’s Central bank are returned to the bank and to hell with international ratings.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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