June 27, 2022

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Here’s how Russia has avoided defaulting on its debt.

2 min read

Despite strict economic sanctions, shrinking currency reserves and nervous banks, Russia has kept up with payments for government debt, confounding expectations from just a few weeks ago, when the ratings agencies believed a default was imminent and the government said it might repay its international loans in rubles.

“People look at this and are scratching their heads,” said Michael Bolliger, the chief investment officer for emerging markets at UBS Global Wealth Management. He said they are asking “how is this possible? And why” is Russia willing to repay?

Monday had been expected to be a flash point for Russian debt, with more than $2 billion due to be paid in U.S. dollars. But last week, Russia bought back about three-quarters of the debt in exchange for rubles, a relatively unusual move that shrunk its dollar obligations. That still left $552 million to be paid. The finance ministry hasn’t said if the payment has been made.

Every payment Russia has owed on its dollar-denominated debt since it invaded Ukraine has been scrutinized. The first payments of $117 million in mid-March were slightly delayed after JPMorgan in New York and Citibank in London sought approvals to handle the transactions, avoiding what would have been Russia’s first default on foreign currency debt in more than a century.

But there is still intense focus on future payments. While Russia has shown a willingness to repay its debt in dollars, analysts have questioned whether sanctions imposed by American and European governments will eventually get in the way of its ability to pay. The U.S. government has created a carve-out from its sanctions policy to allow for debt repayments, but that expires on May 25. Two days later, about $100 million in interest payments are due.

Russia also has lost access to about half of its $600 billion in currency and gold reserves because of sanctions on its central bank, but that hasn’t yet impeded the country’s ability or willingness to send…

Eshe Nelson

2022-04-04 13:14:20

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