Russia Says Debt Payment Made as Moscow Tries to Avoid Historic Default

A Russian ruble coin in front of St. Basil Cathedral in central Moscow on Nov. 20, 2014. Alexander Nemenov/AFP/Getty Images

The Russian government is claiming it fulfilled its obligations in foreign currency on two of its bonds on March 15, one day before they were due.

The Finance Ministry announced that an order had been made to payment agent Citigroup in London.

If the claims are accurate, the country will have avoided its first default since 1998 and the first international debt default since the Bolshevik Revolution more than a century ago.

Moscow was due to execute $117 million in dollar-denominated coupon payments on March 16. As of the writing of this article, some bondholders said they had received payment, in dollars, Reuters reported, citing two market sources.

A Citigroup spokesperson declined to comment.

Russian bonds contain a 30-day grace period, meaning creditors can’t declare an official default until mid-April.

Finance Minister Anton Siluanov earlier told state-owned Russia Today that it’s now up to the United States to ensure that the payments are completed. Siluanov noted in an interview with RT that Western sanctions prohibit ruble-denominated interest payments. Officials had previously revealed that they may intend to make payments in rubles rather than dollars.

This picture taken on Aug. 13, 2021, in Moscow, shows Russian ruble coins and banknotes pictured next to a Russian ruble sign. Kirill Kudryavtsev/AFP via Getty Images

“The possibility or impossibility of fulfilling our obligations in foreign currency does not depend on us. We have the money, we paid the payment, now the ball is in America’s court,” he told the news network.

Kremlin spokesperson Dmitry Peskov also confirmed to the newswire that any default would be “entirely artificial,” adding that “Russia has all the necessary funds and potential to prevent a default.”

The U.S. Treasury confirmed that Western sanctions don’t restrict Moscow from executing interest payments on bonds priced in dollars. This means that U.S. investors are allowed to “receive interest, dividend, or maturity payments on debt or equity of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation” until May 25.

But the March 16 interest payments were only the first of several Russia faces in coming months. Later this month, coupons worth about $615 million are due.

Russia presently owes roughly $40 billion in dollar- and euro-denominated debt, with half the bonds held abroad.

IMF: Russian Default Is No Longer ‘Improbable’

The International Monetary Fund (IMF) cautioned global financial markets over the weekend that a Russian sovereign default is no longer an “improbable event.”

Speaking on CBS News’ “Face the Nation,” IMF Managing Director Kristalina Georgieva said that Moscow possesses enough money to service its obligations, but the government cannot access these funds.

Georgieva doesn’t think this could lead to a worldwide financial crisis. However, the Eastern European state will be bracing for a sharp economic downturn, she said.

“We expect a deep recession in Russia, and this abrupt contraction is affecting already how the Russian population is taking the heat on them,” the IMF head stated. “The ruble depreciated significantly. What does it mean? Real incomes have shrunk. Purchasing power of the Russian population has significantly diminished.”

Others don’t think it will trigger a contagion event for the global financial system.

“While a default would be symbolic, it seems unlikely that it will have significant ramifications, both in Russia and elsewhere,” William Jackson, chief emerging markets economist at Capital Economics, said in a note.

Market analysts purport that foreign governments would be pleased if Russia continued to complete interest payments on external debts since it would result in the Kremlin imbibing more of its foreign exchange reserves.

Russian President Vladimir Putin chairs a meeting with members of the Russian government via teleconference in Moscow on March 10, 2022. SputnikAFP/Getty Images/Mikhail Klimentyev

Over the past eight years, President Vladimir Putin had amassed a $630 billion diversified war chest. While the Kremlin might have had intentions to depend on these reserves to withstand the bombardment of sanctions and restrictions, the global economy’s measures have made it challenging for the government to access these funds.

The most significant problem could be corporate debt.

Throughout the military conflict with Ukraine, much of the focus has been on government debt. But financial experts are beginning to sound the alarm about external corporate debt that totals approximately $150 billion, including loans and bonds.

“Much like with Russian government bonds, we’ve seen signs of distress in Russia’s corporate bond market since Russia invaded Ukraine on Feb. 24,” said Peter Zangari, the global head of research and product development at MSCI, in a report. “There has been a large spike in credit spreads across all sectors. Such a steep rise occurring so quickly may indicate that investors are worried that Russian corporations will be unable, unwilling, or even banned from servicing their debt.”

The Russian ruble has lost roughly 30 percent of its value against the U.S. dollar as of March 17, trading at less than a penny.