Russia appears to have defaulted on its international debt for the first time in over a century, after Western sanctions made the country's efforts to pay its overseas creditors impossible.

Here's what happened

Like any country, Russia sold bonds to investors abroad and at home to support its economy, promising to pay interest in euros and dollars. But after Russia invaded Ukraine in February, the United States and Europe pushed to weaken the Russian war chest, freezing the country's access to foreign currency assets held overseas.

This put Russia on default watch as early as the spring. But Moscow kept paying its debts from currency reserves at home. In May, however, the U.S. Treasury blocked even those transfers to American investors.

With that, two Russian interest payments — worth about $100 million combined — got stuck after Russia transferred them out of its coffersin May. On Sunday night, the clock ran out on a grace period for these payments, and several reports say bondholders have not received this money, meaning a default.

However, an official declaration of default is unlikely. Major credit ratings agencies, which might typicallydeclare, face sanctions barring them from Russian business. And investors themselves may prefer to stay out of the limelight as they sort out how they might get at least part of their money back.

Russia rejects this as artificially made by Western sanctions

The Kremlin on Monday called any default label unlawful, because the country does have the money and has been trying to pay. The latest workaround attempt involvedRussia transferring rublesthrough its unsanctioned banks and inviting creditors to convert the money into euros or dollars.

Russian Finance Minister Anton Siluanov has said for weeks that any default declaration would be artificial and manufactured by the West, because Russia had made the payment transfers before they were due, and it was up to the bondholders to claim their money.

Politically, any default chaos would play into President Vladimir Putin's frequent argument at home: that Western sanctions are less about his actions in Ukraine and more about inflicting misery on the Russian people by any means necessary.

The U.S. and Europe, for their part, argue Russia fully controls its financial fate by refusing to stop its war in Ukraine.

In practical terms, little impact is expected immediately

Russia last defaulted on its international debt in 1918, following the Bolshevik Revolution. In 1998, Russia defaulted on ruble-denominated bonds, which roiled global markets on edge from the Asian financial crisis.

But now, Russia already faces most punishments that might befall an economy in default. Marquee businesses like McDonald's, Starbucks and Nike have left. Its financial system is increasingly isolated. The ratings agencies have already downgraded it.

Still, Russia continues to rake in money for its oil and gas exports. And it has managed to artificially prop up the ruble to the strongest level in seven years. Some creditors, whose bonds face a default, might eventually sue Russia to get their money, but that process would be quite messy and would likely take years.

Will the default chip away at Russia's standing with still-friendly countries? Will Russia be able to borrow on the international market going forward? Will it need to, given its energy revenues? Or will sanctions eventually deplete its coffers and push its economy to unravel?

These are some of the long-term questions, as investors decide whether they see default as Russia being cornered or further burning its own bridges with the world.

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