For the first time in a century, Russia defaulted on its foreign-currency government debt.
However, the situation is a bit tricky because the government claims to have funds but is unable to transfer them to creditors due to sanctions that have cut Russia out off international financial systems.
The deadline for a $100 million overdue interest payment expired on Sunday. The Treasury Department recently closed a loophole that had allowed the Kremlin to make debt payments owed to American bondholders through American banks.
What Russia is saying
Finance Minister Anton Siluanov’s comments were prompted by the grace period that ended on Sunday based on Bloomberg.
The 30-day window was triggered when investors failed to receive coupon payments due on the dollar- and euro-denominated bonds on May 27.
Nonetheless, Anton Siluanov dismissed the situation on Thursday as a “farce.”
With billions of dollars a week still pouring into state coffers from energy exports, despite the grinding conflict in east Ukraine, he reiterated that the country has the means, and the will, to pay.
“Anyone can declare whatever they like,” Siluanov added. “But anyone who understands what’s going on knows that this is in no way a default.”
What you should know
The Kremlin attempted to switch to paying off its debt in rubles last week, blaming the West for pushing it into a “artificial” default.
However, none of the bonds has terms that would allow for the debt to be paid in rubles. An overdue $100 million interest payment should have been made on May 27, and the grace period of one month expired Sunday, technically triggering a default event.
The last time Russia defaulted on its foreign debt was in 1918, during the Bolshevik Revolution, when the Bolsheviks ousted Czar Nicholas II and refused to accept international debts accumulated during the Czarist era.
More recently, Russia defaulted on its local debt in 1998, as the country went through a financial crisis and the ruble collapsed. It recovered from that crisis with the help of international aid.