Russia is on the verge of defaulting on its foreign currency sovereign debt after bondholders report that the Kremlin failed to make two payments on Sunday afternoon, according to the Wall Street Journal.
Why it is important: this is the foreseeable result of the sanctions imposed due to the invasion of Ukraine, even though Russia had pushed the inevitable for months. For now, the default stands out mainly for its symbolism as the first default on Russia’s foreign debt since 1918, which reflects the country’s international pariah status and ruined economy.
Our thought bubble, through Felix Salmon of Axios: Bond defaults usually occur because the issuer does not want to make the payment. In this case, Russia was clearly willing to do so; he just wasn’t able to.
Overview: Russia has not defaulted on international debts since the Bolshevik revolution, although it is defaulting on domestic debt during a financial crash in 1998.
- Russian officials have struggled with $ 40 billion in outstanding payments since the United States and its allies moved to impose sanctions on the country after Putin’s forces launched their invasion last February.
- Russian President Vladimir Putin last week signed a decree for a temporary measure giving the government 10 days to choose banks to manage payments under a new scheme, indicating that Russia will consider its debt obligations fulfilled by paying bondholders in rubles, reports Reuters.
What to see: Although the deadline has passed for Russian officials to meet a 30-day grace period on interest payments that were originally due on May 27, it could be some time before a non-compliance, AP notes.
Editor’s Note: This article has been updated with more details on Russia’s outstanding bond payments and more context.