Russia on Monday brushed aside any thought of a default, but admitted two installments did not reach creditors by Sunday’s deadline due to international sanctions against Russia.
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The country defaulted on its national debt in 1998, but not on its external debt since 1918.
“The investors’ failure to receive the money is not the result of non-payment, but is caused by the actions of third parties, which are not directly (…) considered a case of non-performance,” Russia’s Finance Ministry stressed in a statement on Monday .
“These allegations of Russia’s insolvency are completely illegitimate,” said Dmitry Peskov, spokesman for President Vladimir Putin, citing financial news outlets that had declared Russia insolvent.
Although Moscow has plenty of resources, the sanctions imposed after its offensive against Ukraine mean that the country can no longer make payments in western currencies to pay off interest and its external debt denominated in dollars or euros.
In anticipation of the blockade, the Treasury Department had paid around $100 million in interest upfront as of May 20, before the restrictions finally went into effect five days later.
But these sums were never transferred to the creditors, the bank intermediaries blocked them because of the sanctions, the Russian ministry emphasizes.
This means that Russia has been in default of payment since Sunday evening, the deadline for the relevant regulations.
Moscow is also likely to miss all of its foreign debt maturities scheduled for the end of the year, which affect hundreds of millions of dollars.
“The international payment and compensation systems received the funds in a timely and complete manner and had the legal and financial means to transfer the funds in question to the final recipients,” criticized the Russian Ministry of Finance.
These two payments are the latest Moscow has tried to make in foreign currency. Since the end of May, Russia has been saying it will repay its dollar or euro debt in rubles, but this also exposes itself to insolvency.
The Kremlin denounces a purely artificial and unjustified situation, while the West claims that Russia should be put on the bank of the international financial system for attacking its Ukrainian neighbor.
Last week, Russian Finance Minister Anton Siluanov called the situation a “farce.”
“It is not a mistake of our country, but the artificial and intentional collapse of the international regulatory system,” Vice President of the Upper House of Parliament Konstantin Kosatchev told Ria Novosti agency.
The Kremlin spokesman has warned of any attempts by the West to use the pretext of default to appropriate the roughly $300 billion in Russian financial reserves frozen abroad as part of Western forces’ sanctions against Moscow.
They are “frozen illegitimately and any attempt to use them would also be illegitimate, it would be practically theft,” he said.
Since the three major international financial rating agencies no longer rate Russia, it falls to an organization that brings together major international banks (Credit Derivatives Determinations Committees) to assess whether or not Russia defaults on payments to its creditors.
In 1998, almost two years before Vladimir Putin came to the Kremlin, Russia, weakened by the effects of the breakup of the USSR, the crisis in the Asian economies and the collapse in commodity prices, had to give up payment terms on its public debt and a moratorium on its foreign debt, a humiliation .
The country, whose public debt in foreign currencies reached $141 billion at the time, had to wait twelve years to be able to borrow money on the international markets again.
The last time Russia defaulted on its external debt dates back to 1918 and Lenin’s decision not to default on the Tsarist regime’s debts.