Sanctions push Russia into default, a first since the 1917 revolution

“Russia is on the verge of defaulting on its foreign debt for the first time since 1918, driven into default not by lack of money, but because of Western sanctions imposed after its invasion of Ukraine”reports the Wall Street Journal.

Sunday evening, June 26, holders of two types of bonds issued in euros and dollars reported that the country had not respected “the expiration of the thirty-day grace period since he had to pay the equivalent of $100 million” (or 94.5 million euros), explains the American daily.

A very symbolic question

This situation is not surprising, since “the West practically cut Russia off from the international financial system, leading to payment obstacles that Moscow could not overcome”. That is why “there should be no immediate repercussions on the economy” Russian, the markets having anticipated the event.

It is therefore a very symbolic question: the last time that Moscow could not repay its loans abroad dates back to the Bolshevik revolution, “when Vladimir Lenin, the newly installed communist leader, canceled the debt of the Russian Empire”. During the 1988 financial crisis, Russia defaulted on its ruble-denominated bonds, but “it had managed to meet its foreign debt”.

A “farce” seen from Russia

The country gave itself “great pains in recent months to channel the money in a roundabout way so that the required payments reach the bondholders.” Vladimir Putin’s diet “accuses the West of fabricating an artificial default”. Anton Silouanov, the Minister of Finance, spoke on Thursday of a “farce” stating that Western countries wanted “sticking the ‘default’ label to Russia”.

In fact, underlines the Wall Street daily, the country “has enough money from oil and gas exports to pay its external debt, which is relatively small compared to the size of its economy”. Economic sanctions have simply “prevented from accessing his overseas bank accounts or using cross-border payment networks”.

Since Russia has the means to pay, “its default should only cause legal problems” : Russia “claim that its obligations have been fulfilled” and the matter will have to be decided in the competent courts. Mark Weidemaier, professor of law at the University of North Carolina and specialist in sovereign debt, explains to the Wall Street Journal :

“This is the most chaotic and legally uncertain case of sovereign default imaginable.”