Russia said on Sunday that the payment of the Sovereign bonds will depend on the sanctions imposed by West by invasion of Ukrainewhich makes him fear his first big default of foreign bonds from the years after the Bolshevik revolution of 1917.
The Ministry of Finance Russian stated that it will pay sovereign debts in full and on time, but that payments could be hampered by international sanctions.
“The actual possibility of making such payments to non-residents will depend on the limitation measures introduced by foreign states in connection with the Russian Federation“, the Ministry of Finance said in a statement.
This raises the possibility of a technical default on the debt by Russia after much of its $640 billion in reserves were frozen by the West after President Vladimir Putin order what Russia describes as a special military operation in Ukraine on February 24.
From now on, Russia will use rubles to make payments to residents in bonds denominated in foreign currency, the ministry said. The portfolio also explicitly stated that Russia may not be able to make bond payments due to restrictions imposed by the Russian government.
In 1998, Russia defaulted on $40 billion of domestic debt and devalued the ruble under the mandate of Boris Yeltsinbecause it was bankrupt after the Asian debt crisis and falling oil prices shattered confidence in its short-term ruble debt.
This time, Russia has the money but cannot pay because the reserves that Putin ordered to accumulate for such a crisis – the fourth largest in the world – are frozen by United Statesthe European Union, United Kingdom and Canada.
It could be Russia’s first major debt default in more than a century. Even when the Soviet Union collapsed, Russia took on its foreign debt.
In 1918, Bolshevik revolutionaries under the command of Vladimir Lenin they repudiated the tsarist debt, which shocked world markets, since Russia then had one of the largest external debts in the world.
Since the bonds were worthless, some tsarist banknote holders used them as wallpaper. The Soviet Unionunder the command of Joseph Stalinstopped paying loans to the United States and Sweden after the WWII.