Russia says it is being forced to default; titles expire this Wednesday

Russia on Monday accused Western countries of wanting to trigger an “artificial default” through its sanctions by freezing Moscow’s assets abroad, reliving memories of the humiliating default in 1998.

“Statements that Russia cannot meet its obligations in relation to its public debt do not correspond to reality”, insisted the Ministry of Finance, before adding that “the freezing of foreign currency accounts of the Bank of Russia and the government can be seen as the desire of some foreign countries to organize an artificial default”.

For Russia, it’s about her honor and not just her access to financial markets. For two decades and especially since the 2014 crisis, Moscow has really tried to build an irreproachable financial health, with a very low debt ratio and reserves of more than US$ 600 billion (US$ 3 trillion) accumulated thanks to the income of the Petroleum.

But today, in retaliation for the Russian invasion of Ukraine, the reserves held abroad, around US$ 300 billion (R$ 1.5 trillion), have become the Achilles heel of the Russian economy: they are frozen under Western sanctions. , challenging Russia to meet multiple foreign currency debt repayment deadlines during March-April.

“Unique situation”

If the ‘eurobonds’ issued since 2018 can be repaid in rubles, it is not the case with the first maturity that takes place on Wednesday (16), with a repayment of US$ 117 million (R$ 587 million).

“It’s a unique situation where the sanctioning side decides on a Russian default in 2022,” estimates Elina Ribakova, deputy chief economist at the IFF (International Institute of Finance).

She notes that “unless the US Treasury allows the release of some of Russia’s $300 billion in frozen assets to pay less than $20 billion in foreign holdings of Russian eurobonds, we are likely to see a default.” “.

Western sanctions paralyzed part of the Russian banking and financial system and caused the ruble to collapse. A payment default automatically cuts off a state from the financial markets and jeopardizes its returns for years.

After the fall of the USSR, Russia inherited $70 billion in debt from the vanished empire. A weight that took more than a quarter of a century to shake off.

The painful and chaotic 1990s culminated in a humiliating debt default in 1998, when the Russian economy was weakened by, among other things, a financial crisis in Asia and the colossal cost of the first war in Chechnya.

It took 12 years for Russia to resume borrowing on international markets, with a new bond issue in 2011.

In the early 2000s, the country benefited from an influx of petrodollars thanks to rising oil and gas prices, which allowed it to accumulate reserves and definitively turn the page on Soviet debt with the latest repayments in 2017.

Russia has made it a point of honor to rebuild its reputation as an irreproachable debtor, efforts that risk being destroyed.

“Russia has the money to pay its debt, but it doesn’t have access to it. What worries me the most is that there are consequences that go beyond Ukraine and Russia,” IMF director Kristalina Georgieva said in an interview with the American channel. CBS on Sunday (13).

Despite ruling out a global financial crisis, he stressed, however, that the increase in food and energy prices caused by this crisis could lead to hunger, particularly in Africa. This is in addition to the economic effects on the Russian and Ukrainian populations, part of which is at risk of sinking into poverty, as well as in neighboring countries.