The Russian government may be headed for its first foreign debt default since the Bolshevik Party shocked Western investors in 1918 by refusing to repay the borrowings of Czar Nicholas II.
Further clouding the outlook is Putin’s March 5 decree allowing Russia to repay creditors who are “associated with the countries involved in hostile actions” against it using rubles rather than scarce foreign currency.The financial combat between Russia and the U.S.-led coalition is a throwback to past government debt wrangles, according to Mitu Gulati, a sovereign debt specialist at the University of Virginia law school.
But a sovereign default could trigger a similar approach by Russian corporations to their borrowings, which are roughly four times what the Russian government owes, according to William Jackson, an economist with Capital Economics in London.Russian companies so far have continued making debt payments. But with the economy expected to shrink by 30 percent, according to IIF, and most exports blocked by sanctions, Russian businesses will struggle to keep paying, Jackson said.
With the United States and its allies waging a financial war on Russia, Moscow already has failed to make some required payments to foreign investors. Earlier this month, the government deposited interest payments on ruble bonds into its National Settlement Depository. The Central Bank of Russia has blocked the money from being transferred to investors’ accounts.Story continues below advertisementearlier this month, allowing U.S.
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