Russia has entered a technical default state because it has failed to cover its external debt worth USD 100 million (EUR 95 million), as reported by Bloomberg.
Russia was supposed to pay back this amount a month ago, but the grace period for redemption of Eurobonds remained in force until Monday, 27 June.
Bloomberg notes Russia’s entrance of a technical default is «culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors». This is the first time since 1918 when Russia has failed to cover its external debt.
According to Bloomberg, «it’s a grim marker in the country’s rapid transformation into an economic, financial and political outcast»,
because Russian central bank’s reserves are frozen and the country’s biggest banks no longer have access to the global financial system.
At the same time, Bloomberg stresses that the alleged default in Russia is mostly symbolical and will not affect the country’s residents all that much. Russian Minister of Finance Anton Siluanov has called the default label nothing more than a farce.
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On 22 June Russian President Vladimir Putin signed a decree on the order under which the country’s debt payments are to be performed. This decree states government bonds in foreign currency can be unilaterally converted into roubles.
Holders of Russian government eurobonds will have a special account the money in which will be converted into roubles in accordance with Russian central bank’s exchange rate to meet the debt amount. Repayment of the debt will be considered «completed correctly» regardless of the position of payment recipients.
Russia started experiencing difficulties with covering its state debt after western countries imposed most of Russia’s international reserves following the invasion of Ukraine.
Sometime after the start of the war the US Department of the Treasury allowed Russia to use some of its reserves to service its external debt. However, this option was prohibited not long after. Russia’s minister of finance insists the country is being forced into a default. Nevertheless, he remains confident the technical default «will not influence the economy» and Russia still has currency and resources to cover the state debt.