Published on :
The default of Russia on its sovereign debt is getting closer with the decision taken yesterday, Tuesday April 5, by the US Treasury. It adopted a new measure limiting the dollar payment capacities of the Russian authorities.
The message from the US Treasury accompanying its decision is very clear: to meet the next deadlines, Moscow must choose: either Russia empties its dollar reserves, or it uses its export revenues, or it defaults. The financial sanctions taken against Russia form a noose that the US Treasury is gradually tightening according to increasingly frightening echoes from the war in Ukraine. The massacres of civilians attributed to Russian soldiers in Bouchra in the suburbs of kyiv triggered this new turn of the screw. This is additional pressure on the Russian state according to Anne-Laure Kiechel, the founder of Global Sovereign Advisory, a consulting firm for states, in particular on their sovereign debt. The end goal of the United States is to exhaust Russian resources to finance its dirty war in Ukraine.
Does Russia have the funds available to meet its deadlines?
In theory very largely. Its external debt in Eurobonds amounts to 40 billion dollars, and it must face this year maturities of a total amount of 4.7 billion dollars. This is a priori largely covered by the reserves of its central bank. Even if these reserves are dwindling, they amount to hundreds of billions of dollars. In addition, Russia continues to export its hydrocarbons, which will bring in 320 billion dollars this year, more than enough to honor the payment of dividends, interest or reimbursements due.
Russia has always expressed its willingness to face
Indeed, Russia does not want to be forced into default of payment because it knows that it will pay dearly for it in the future. This could prevent it from borrowing on the international markets or only at an exorbitant cost, but it will need at one time or another new money to finance its economy. But in practice its fate is today entirely in the hands of the American administration. The Treasury has granted it an exceptional right to draw on its frozen dollar reserves abroad, this license could be renewed at the end of May. If this were not the case, the probability of a default would then be much higher, according to Anne-Laure Kiechel.
Even if Moscow repays its debt in rubles?
The use of an alternative currency is planned for 6 of the 15 bonds issued by Russia. And this option only applies if the country has no other choice, which is not the case since Russia has de facto revenues in dollars. Everything will ultimately depend on the interpretation of the authorities responsible for declaring the default. The strategy of drying up the Russian economy via payment default is a long-term process that will probably take several more months. Renouncing Russian gas supplies would be much more effective. The decision is up to the main customers, the Europeans, and especially the Germans. And they’re not ready to do that yet.
►in brief
In China, service activity is slowed down by the wave of Covid
L’Services PMI fell below the 50 threshold in March, which signifies a contraction in activity; it fell to 42, the largest decline in two years. It’s the resurgence of coronavirus that’s cooling the economy; today China crossed the bar of 20,000 new cases per day, it was at 10,000 this Sunday.