How Russia overcomes international sanctions
Russia is the first foreign debt since the Bolshevik Revolution I fell into default. According to media reports, more than a century ago. The sanctions imposed on the war in Ukraine move the country further away from the world's financial system.
Bondholders claim they have not received overdue interest on Monday after the expiration of their major payment deadlines on Sunday, reported byReutersandBloomberg. did. The White House hinted at Russia's default on Monday's media briefing, the first sovereign debt since 1918.
"Banks seem to have complied with international sanctions and withheld payments," said Chris Weafer, a veteran Russian economic analyst at consulting firm Macro-Advisory.
Last month, the US Treasury ended Russia's ability to repay billions of dollars in debt to international investors through US banks. Did. In response, the Russian Ministry of Finance said it would pay the dollar-denominated debt in rubles and provide "an opportunity to subsequently convert to the original currency."
Russia said it had money to pay its debt, but Western sanctions created "human obstacles" by freezing foreign exchange reserves held abroad. Kremlin spokesman Dmitry Peskov told reporters on Monday that "there is no reason to call this situation a default," Russia paid but could not handle it due to sanctions.
The other side said, "This happened because of sanctions, but the sanctions were entirely under your control," said Jay, the top sovereign debt attorney at Wilk Auslander's company in New York.・ S. Auslander said. "This was all under your control, as all you had to do was invade Ukraine."
You should know about Russia's sovereign debt defaults. That is:
How much does Russia owe?
About $ 40 billion in foreign bonds, about half of which is for foreigners. Before the war began, Russia had about $ 640 billion in foreign currency and gold reserves, many of which were held abroad but are now frozen.
Russia has not defaulted on international debt since the Bolshevik Revolution, when the Russian Empire collapsed and the Soviet Union was founded. Russia defaulted on its domestic debt in the late 1990s, but was able to recover from it with the help of international aid.
Russia has virtually defaulted for months in the eyes of fixed income investors, said Liam Peach, an economist specializing in emerging European markets for capital economics. ..
Insurance contracts covering Russian debt have an 80% chance of defaulting over several weeks, and rating agencies like Standard & Poor's and Moody's have junk national debt. I put it deep inside.
How do you know if a country is the default?
Rating agencies have either lowered the rating to the default or the court can decide the issue, but have suspended the Russian rating. Bondholders with credit default swaps (contracts that act like insurance contracts against defaults) can ask a committee of financial company representatives to decide whether default will trigger payments. increase.
The Credit Derivatives Decision Board, an industry group of banks and investment funds, is likely to flag "credit events," Peach said.
The Panel ruled on June 7 that Russia did not pay the required additional interest after paying the bonds after the due date of April 4. However, due to uncertainty about how sanctions would affect the settlement, the Commission postponed further action.
What can investors do?
The formal way to declare a default is if more than 25% of bondholders say they didn't receive the money. When that happens, the provisions of thedocument notepublished by Bloomberg also default to all other foreign bonds in Russia, and bondholders seek a court ruling to force payments. It states that it can be done.
Under normal circumstances, investors and defaulting governments usually negotiate a settlement that gives bondholders new bonds of low value but at least partial compensation.
However, sanctions prohibit transactions with the Russian Ministry of Finance. And no one knows when the war will end or how much the default bond is worth.
In this case, Auslender said, declaring a default and complaining that "it may not be the wisest choice." It is impossible to negotiate with Russia and the unknowns are so large that creditors may decide to "stick firmly for now".
Investors hoping for Russian debt are probably already heading out and may have bought bonds at knockdown prices in the hope of benefiting from the settlement in the long run. there is. And they may want to be unobtrusive for a while to avoid being involved in the war.
When a country defaults, it can be separated from borrowing in the government bond market until the default is resolved and investors regain confidence in the government's ability and willingness to pay. But Russia is already separated from the western capital markets, so returning to borrowing is a long way off.
The Kremlin can still rent a ruble at his home, where he relies primarily on Russian banks to buy bonds.
What is the impact of Russia's defaults?
Western sanctions on the war have caused foreign companies to flee Russia and disrupt trade and financial relations between Russia and other parts of the world. The default is another symptom of that quarantine and confusion.
Weefer hasn't borrowed internationally for years in sanctions and earns a lot of money from exporting commodities such as oil and natural gas, so the default is now. However, he said it would not affect the Russian economy.
But in the long run, when the war is settled and Russia tries to rebuild its economy, "this is where default heritage matters, like if individuals and businesses deteriorate. It's a credit score, and it will take years to get over it. "
Investment analysts are cautious about Russia's defaults not affecting global financial markets and institutions resulting from previous defaults in 1998. At that time, Russia's domestic ruble bond defaults led the US government. Larger US hedge funds, feared to collapse, could shake the broader financial and banking system in order to intervene and force banks to bail out long-term capital management.
Bond holders (for example, funds investing in emerging market bonds) can suffer serious losses. However, Russia plays a small role in emerging market fixed income indexes, limiting losses to fund investors.
"The spillover effect on other parts of the world should be limited," Peach said.
However, Russian defaults can have a ripple effect by putting pressure on the global bond market, increasing investor risk aversion and discouraging investors from moving forward. Weefer said.
- In:
- War
- Economy
- Ukraine
- Russia
Thank you for reading CBS NEWS.
Create a free account or log in to
to take advantage of other features.
