‘Historic watershed’

Russia defaults on its international debts for first time since 1998

RUSSIA today defaulted on its debts for the first time since its 1998 currency crisis.

That comes just as the G7 leaders meet to discuss the viability of a price cap on Russian oil, the latest sanction to try to put pressure on Vladimir Putin over the Ukraine invasion.

Russia missed a deadline on Sunday night for interest repayments of $100 million on two Eurobonds issued in May. While the default is largely symbolic since it can’t borrow internationally anyway, it could increase those borrowing costs in future. Russia has been talking about paying all debts in roubles, something lenders who deal in dollars are less than keen on.

Hassan Malik, senior sovereign analyst at Loomis Sayles, told Bloomberg: “It’s a very, very rare thing, where a government that otherwise has the means is forced by an external government into default.It’s going to be one of the big watershed defaults in history.”

Russia has struggled to keep up payments on $40 billion of outstanding bonds since its invasion of Ukraine on February 24, as sweeping sanctions have effectively cut the country off from the global financial system and rendered its assets untouchable to many investors.

The Kremlin has repeatedly said there are no grounds for Russia to default but it cannot send money to bondholders due to sanctions, accusing the West of trying to drive it into an artificial default.