The US government announced on Monday, June 27th, that the Russian government has defaulted on its external debts. However, Kremlin spokespersons have denied this. Russia is advising investors to financial agents in the West as bondholders were told that the funds were sent, yet none have been received.
This is the first time since the Bolshevik Revolution of 1917 that Russia has defaulted on international bonds. The default is seen to pose even more problems for a country that has already been cut out of the global financial systems thanks to international sanctions imposed following its invasion of Ukraine.
These sanctions have prompted Russia’s deputy finance minister Alexei Moiseev to declare that the Group of Seven has lobbed what he calls a “financial nuclear bomb” against his country. He added that no nation in history has ever been subjected to sanctions as severe as those currently imposed against Russia.
Before the announcement, Russia still paid for its Eurobonds in foreign currency in compliance with issue conditions. However, both the country’s dollar and euro coupon transfers for May 2021 have yet to be received by investors. The said transfers were made before a US waiver allowing such transactions expired.
An Adamant Denial
But Russia insists that any sort of default is mere speculation and any statements are unjustified. Therefore, according to Kremlin spokesperson Dmitry Peskov, there are no grounds to declare the situation a default.
Peskov added that Euroclear withheld the money, but that it did not bring the funds to the right recipients is not Russia’s problem. The Russian finance ministry issued a statement reiterating this point, saying that the actions of the country’s financial intermediaries overseas were beyond their control and that bondholders ought to speak directly to the concerned personnel at Euroclear.
For its part, Euroclear has yet to respond to the issue.
Putin Speaks Up
For his part, Russian President Vladimir Putin ordered that all of Russia’s debt obligations be fulfilled once the finance ministry made a ruble payment equal to the amount in foreign currency. He added that bondholders were required to open an account at a Russian bank to get those payments.
Nevertheless, the Russian government will not block any payment’s conversion into foreign currency or its transfer overseas. First, investors need to issue a written document stating they have no claims against Russia.
As of press time, Moscow has yet to disclose which local banks have been authorized to handle such transactions.