The Russian Finance Ministry announced on Wednesday that it had settled a debt in dollars in rubles following the refusal of a foreign bank to make the payment in dollars, which exposes it to a risk of default.
“A foreign bank refused to execute instructions” to pay an amount of $649.2 million due on April 4, the ministry said in a statement, claiming therefore to have been “forced to appeal to an institution Russian financial institution to make the necessary payments (…) in the currency of the Russian Federation”.
For several weeks, Russia managed to avert the danger of a default, with the US Treasury allowing the use of foreign currencies held by Moscow abroad to settle foreign debts.
“There is no basis for a real defect”, sweeps the Kremlin
But on Tuesday, the US Treasury Department announced it would no longer allow Russia to repay its debt with dollars held in US banks, ratcheting up the pressure and raising the risk of a Russian default.
This measure was taken on Monday, April 4, the deadline for a Russian payment of a bond in the amount of two billion dollars, issued in 2012.
Prior to this payment, Russia had already offered creditors to buy back their debts and repay them in advance in roubles, a measure allowing Russian creditors to obtain their money without the complications linked to sanctions, but also to authorities from having to pay fewer dollars.
After a period of 30 days from April 4, a default could now be pronounced. “There is no basis for a real default,” swept Kremlin spokesman Dmitry Peskov, questioned during a press briefing on Wednesday, saying that “Russia has all the resources necessary to honor its debts “.
$300 billion in Russian reserves
“It is difficult for Russia to avoid a sovereign default,” nevertheless commented Timothy Ash, analyst at Blue Bay Asset. “A flaw is a flaw. The markets will judge it that way. The investors have not been paid. They will remember it”.
In retaliation for Russian military intervention in Ukraine, the portion of Russia’s gigantic reserves held abroad, some $300 billion, is frozen under Western sanctions.
A payment default cuts a state off from the financial markets and jeopardizes its return for years.